Walt Disney Co (DIS) Stock Is One of the Best, Safest Plays Right Now

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Credit Suisse recently reiterated its Outperform rating on Walt Disney Co (DIS) stock and predicted upside of 40% with a price target of $130. Since then, shares of DIS stock have moved higher some, but investors can still grab Disney stock with upside of 36% if Credit Suisse is right. In my opinion, Credit Suisse is not only right, but perhaps a little conservative.

Walt Disney Co (DIS) Stock Is One of the Best, Safest Plays Right Now

More Box Office Catalysts Ahead

You can’t discount the fact that DIS stock has been a seemingly unstoppable machine over the last five years, rising more than 117%. This incredible performance was sparked by the success of its Avengers and Marvel franchises, along with the anticipation of what later became the top box office haul ever in “Star Wars: The Force Awakens.”

Since then, shares have taken a breather, falling back in recent months. But thankfully, Disney has another Marvel film in the coming months, “Civil War,” along with two more Star Wars installments and who knows how many more billion dollar Marvel films. Hence, there are more than enough box office catalysts to keep pushing Disney stock higher.

What Makes DIS Stock so Attractive?

With that said, Disney’s movie business is only a small piece of the large puzzle that creates DIS. In addition to box office sales, DIS collects DVD, cable, and now streaming rights to its top films, along with merchandise and branding at its theme parks. In regard to the latter, many believe that Disney’s theme park business is mature, but with annual price hikes and new parks opening around the world, it is a business that continues to pay dividends year after year.

Credit Suisse noted in its research report that Disney’s theme park business has operating income growth of 15% annually and 21% growth in its consumer products. This is growth not typically seen in large media companies and is deserving of a premium multiple.

Yet, due to DIS stock’s losses of nearly 20% over the last three months, Disney stock now trades at just 15.3 times FY2017 earnings per share. That’s quite comparable to other media giants and not much of a premium over the S&P 500. With DIS expected to maintain double-digit bottom-line growth, along with mid-single-digit revenue growth over the next few years, it seems far more likely than not that DIS stock will quickly return to all-time highs north of $120.

ESPN Has Bottomed

All things considered, if Disney stock reaches $130 this year, it will trade at roughly 22.5 times earnings. I don’t think that’s obscene, given the obvious strengths of DIS. Furthermore, the fact that Disney’s one gray area is starting to find balance bodes well for the near-term direction of DIS stock.

Of course, I am talking about ESPN. For many years, ESPN helped to drive DIS stock value higher, but well-documented subscription losses have since weighed on investor sentiment. However, the sequential declines in ESPN subscribers that have occurred throughout the last year improved during the company’s last quarter, and CEO Bob Iger even noted that subscriber figures had seen a recent uptick since the end of Disney’s last quarter.

In other words, the worst is probably over for ESPN, and that means the worst is likely over for Disney stock.

As of this writing, Brian Nichols was long DIS stock.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/walt-disney-stock-price-dis/.

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