Disney: Don’t Buy DIS, But Don’t Bet Against It

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Walt Disney (DIS) management has shown that it can take a good business and make it better by applying their tried and true business model. The model is: release a movie, merchandise it through toys, games, music, etc…, add a Disney themes attraction of the movie at a theme park and support all activities with Disney interactive on the web. It is a pure money making machine!

DIS stock disney stock euro disney ceo bob igerSo many may have questioned why back in 2008 Disney purchased Marvel Entertainment, a comic book publisher. Where do comic books fit into the above model? That is where the genius comes from. Some of the most creative people in the world use comics to create storied worlds of intrigue using both colorful pictures and words with relatable characters that people connect with. Marvel’s stable of over 5,000 of these characters gives Disney the ammunition it needs to run the money machine.

Marvel Announces Nine New Films Through 2019

This week, Marvel announced nine new films it will produce through 2019, priming the Disney money machine, they are:

  • In 2016: “Captain America: Civil War” and “Doctor Strange”;
  • In 2017 : “Guardians of the Galaxy 2,” “Thor: Raganarok” and “Black Panther”;
  • In 2018: “The Avengers: Infinity War — Part I,” “Captain Marvel” and “Inhumans”
  • In 2019: “The Avengers: Infinity War — Part II” in 2019

Of the above line-up, a much talked about topic is Captain Marvel which has had several incarnations in the world of comic books but the movie will feature a female superhero, the first female-led film for Marvel Studios, which will have earthbound adventures but cosmic powers. Captain Marvel will have much to live up to as Marvel Studio’s major competitor Warner Brothers is planning to release its Wonder Woman movie in 2017. I would anticipate more woman led movies as both studios are listening to their audiences who are spending their money at the box office.

Disney – Track Record of Successful Acquisitions

Marvel is not the only company Disney has been able to acquire and turn into a money machine.

When Disney acquired Capital City Communications, which owned the ABC network in 1995, it also got ESPN, which at the time an expanding sports channel. Disney saw potential in ESPN and tried plugging it into the Disney machine, through international expansion and ESPN branded attraction and merchandise in Disney stores but in the end it did not work out well so they let ESPN grow on its own. Now some estimates peg ESPN’s value at over $50 billion, not bad for $19 Billion purchase and that does not include ABC, the reason for the acquisition in the first place. Although not as successful as ESPN, with an estimated value of $3.2 billion, ABC has been a valuable resource to extend the Disney brand as well.

In 2004, Disney took a gamble and bought most of the rights to the Muppets. Starting in 2008, Disney began to gradually introduce the Muppets back into the limelight including YouTube Shorts which gained a huge following, a movie in 2011 and most recently the Muppets most wanted in 2014.

Pixar was another great Disney acquisition which was acquired in 2006 for $7.4 billion and has produced such great franchises as Monsters, Cars, Nemo and Toy Story.

In 2012, Disney bought Lucas Films and the rights to Star Wars, for about $4 billion and has worked to continue the franchise expansion with the release of Star Wars Episode VII in 2015, merchandising and other related activities.

This is not to say that everything Disney touches turns to gold. Disney has sold or shuttered numerous businesses through the ages. Disney’s acquisitions do best when it can acquire businesses that can be plugged into the Disney money machine to turn out more profits, with ESPN being the exception to the rule.

Disney – Still Too Rich for my Blood

I remain awestruck by Disney’s abilities to turn acquisitions into piles of profits, and Disney’s fundamentals show it with shares up over 17% year to date, high margins and low debt.

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Source: Yahoo Finance

With a current price-to-earnings ratio of 21.6, a price/earnings-to-growth ratio of 1.81 and a 12-month analyst consensus price target of only $93.5, there is not sufficient margin of safety to warrant buying Disney at this time, but I also would not bet against Disney either.

As of this writing, Kenneth Fick did not hold a position in any of the aforementioned securities. Write him at kfick@piercethefog.com or follow him on his blog at www.piercethefog.com.

 


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/disney-sure-can-pickem/.

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