Blue Chips Stocks That Will Bleed: Walt Disney (DIS)
Here’s what should worry investors in Walt Disney Co (NYSE:DIS) stock: The company is executing very well.
The acquisition of the Star Wars franchise has been a success, with the first two Disney-produced films putting up monster numbers. The film business as a whole set industry records in 2016. The theme park business is running nicely, growing revenue 6% in Disney’s first quarter, while operating profit rose an impressive 13%. Goldman Sachs even just added DIS to its “Americas Conviction Buy” list thanks to the strength of movies including Beauty and the Beast.
That’s all overshadowed by the weakness in the company’s Media Networks business … and that’s not going to change.
Disney’s ESPN unit is in decline, with little chance of reversal. ESPN’s huge profit margins are based in part in getting cable subscribers to pay $7-plus for month for ESPN alone (not to mention smaller channels like ESPN2 and ESPNews) — whether they want it or not.
That model is falling apart in a time of cord-cutters and “skinny bundles.” And with cable networks driving over 40% of the company’s consolidated operating profit, ESPN’s decline represents a significant headwind for Disney stock. As our own Lawrence Meyers — who owns Disney stock — has argued, DIS stock isn’t a buy until ESPN is “fixed.”
And I don’t expect that fix to come for some time, if ever.