Disney Stock: Can the New Star Wars Film Buoy DIS?

Advertisement

To say the buzz surrounding Star Wars: The Force Awakens is strong would be a monumental understatement. It’s downright palpable, bordering on electric.

Disney Stock: Can the New Star Wars Film Buoy DIS?To that end, it has also been bullish for Disney (DIS) shares… something Disney stock could certainly use after a couple of major pullbacks this year following troubling reports regarding Disney-owned ESPN.

The question is, can the Star Wars franchise do enough to keep DIS stock moving higher?

As huge as Star Wars could be for Disney this year and through the rest of the planned movies of the franchise, there’s no getting around the fact that the company is facing serious headwinds on other fronts.

Star Wars … A Winning Lottery Ticket

Although the first flick of what will be a another trilogy won’t officially debut until Friday, the traditional early screening at Hollywood’s TCL Chinese Theater on Monday went amazingly well. The response from critics, as well as some of Hollywood’s biggest stars, has been tremendous.

Actor Rob Lowe’s tweet “There’s a new hero in town, in a movie that DELIVERS. Cried like a baby, whooped like a teen!” pretty well sums up the initial assessment of the film.

It’s a great initial step into an opening weekend that some expect could drive ticket sales of more than $200 million in the U.S. alone.

That’s a pretty big chunk of change for Disney, but also just the beginning. Between licensing revenue and the follow-up movies, the rekindled Star Wars franchise could drive as much as a couple of billions in revenue — each — for Disney, not to mention the billions Disney could rake in on sales of video games, toys, etc. from the films.

Owners of Disney stock have good reason to be enthused.

Disney Can Not Live on Star Wars Alone

It seems tough to imagine, but as big as the new Star Wars film is bound to be, Disney is losing a similar amount of ground on its other fronts.

Yes, we’re talking about ESPN … the sports-oriented television venue that at one point was the go-to channel for all things-athletic, but recently has struggled to retain an audience that’s finding coverage of sporting events elsewhere.

One figure tells the tale: 7 million. That’s the number of (net) ESPN subscribers Disney has lost over the past couple of years, bringing the tally down to only 92 million.

It’s not just ESPN losing ground, however. The Disney Channel, as well as ABC Family, have lost comparable numbers of subscribers, as more and more consumers cut the cord and can’t/don’t find those television channels through other means like the internet. Last quarter’s cable network revenue showed strong growth, but owners of Disney stock understandably have their doubts about the sustainability of that growth.

At the same time, while it may have been justified relative to the amount it was spending to maintain them, the recent increase of the entry price into Disney’s theme parks may have unofficially pushed a Disney vacation into “unaffordable” territory for the average family. The outcry has been clear, and at least some consumers are now foregoing a visit.

Point being, were it not for Star Wars (and to a lesser extent in 2015, the movie Inside Out), Disney may not have had much to tout this year, and little for next year as well.

Bottom Line for Disney Stock

It’s cliche, but it’s cliche for a reason … buy the rumor, sell the news.

In this case, investors are buying Disney stock on the buzz surrounding Friday’s movie release and all the licensing revenue that comes with it.

There’s been absolutely nothing held back about the movie and ancillary opportunities it brings, though, which means most anybody who wanted to step into DIS stock to capture the benefit of The Force Awakens has likely already done so. That just leaves behind the sellers and millions of would-be profit-takers who will have the nerve to act surprised shares didn’t soar after the projected numbers become reality.

Welcome to Investing 101. That first lesson is, when a stock is highly watched and highly traded, the trick isn’t finding unnoticed value. The trick is figuring out how the masses are going to be thinking and trading at a particular point in the future.

In the case of Disney stock, that just means recognizing the masses plowed into a rather obvious trade in front of an event, which in turn means DIS shares are already at or near their best possible price. The forward-looking price-to-earnings ratio is a robust 18.

There’s nowhere else for them to go, particularly in light of the fact that the Star Wars films are the only positive thing the company’s got going on right now.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/12/disney-stock-already-fully-valued-headed-release-new-star-wars-film/.

©2024 InvestorPlace Media, LLC