As a longtime shareholder and bull of Walt Disney Co (NYSE:DIS), I thought it prudent to share with fellow investors three important factors to keep an eye on regarding DIS, the greatest entertainment stock in the market.
For a long time, I’ve pointed to DIS stock’s diversification and execution and the keys to its success. We all know the bevy of divisions the company operates and how much they appeal to kids and adults.
So what are the things that are so fundamental to these divisions that, if something goes wrong, might be a sign to bail on DIS stock?
DIS Stock: Content, Content, Content
Content is king. That is the most essential element of DIS success. DIS stock has soared over the years because DIS understands its audience, even as times change. The company has acquired three cornerstones to add to its own family fare over the years.
DIS purchased Pixar, Marvel and Lucasfilm. If you’ve seen the movies (and TV) produced these studios, then you know they generally do not miss. Pixar, in particular, has an extraordinary track record — even its worst film, Cars 2, was still a monster hit. Over at RottenTomatoes.com, every single film has a rating of 74% or higher, and most are better than 95% (Cars 2 came in at 39%).
In other words, every film is a 3.5 or 4-star effort. That’s unreal.
Pixar makes great films, period. From those films come all the ancillary revenues, especially merchandising.
The same goes for Marvel, whose films are generally 3-star efforts or higher, with Tomatometer rankings often at 60% or above. Marvel makes good films, occasionally great ones, with massive worldwide revenues.
It remains to be seen how Lucasfilm will shake out, but I’m not terribly worried. Lucasfilm is home to the Star Wars movie franchise, with the highly-anticipated Star Wars: Episode VII — The Force Awakens due to release in December.
The TV content is strong. I watch it all the time with my kids, and of course, that includes the ABC networks.
There are three things to watch here: if Pixar makes three duds in a row; if Marvel films stop being good and become mediocre on a regular basis; or if TV content loses its edge. Those would be red flags.
DIS Stock: Innovation
Dsney needs to be innovating in its own fashion. Technology isn’t the key, but rather, innovating its consumer experience. All the major content providers are moving to on-demand streaming. DIS needs to keep pace.
DIS has shown no hesitation to constantly upgrade its theme park experience. Attractions are always being renovated and upgraded. If the parks start to feel old and tired, be concerned.
DIS Stock: Succession
CEO Robert Iger has extended his contract at least through 2018. Iger has proven he runs Disney extremely well and DIS stock has responded accordingly. At some point, he’ll step aside. The next CEO will need to have several qualities.
Be concerned if that CEO does not have experience in content. Iger came out of television, starting with ABC way back in 1974. We want a content guy at the helm, not a bean-counter.
Pixar Studios doesn’t have a CEO so much as a braintrust. This includes great storytellers like fellow USC alum Lee Unkrich and John Lasseter. If the braintrust dissolves, who takes its place?
Likewise, over at Marvel, Kevin Feige has been instrumental in the studio’s quality control. Superhero films require an understanding of both genre and audience. Feige has both. If he moves aside, his replacement needs to have a comic pedigree.
The Bottom Line
Other than these issues, I see smooth sailing for the Mouse House. Even as it sits at an all-time high, DIS stock remains a GARP stock (growth at a reasonable price) worth owning.
As of this writing, Lawrence Meyers owned shares of DIS.
