Walt Disney Co (NYSE:DIS) is one of the most iconic U.S. companies operating today.
But its image has changed from kids- and family-centered entertainment to a much bigger canvas that includes a small sports empire and a major motion picture studio and television channel to support all its content.
What DIS has done over the years is make sure each of its operations is running at peak efficiency. And the fact that it has been able to remain profitable and growing for 93 years is a testament to the long-term vision leadership has always maintained.
For example, it recently opened a Disneyland in China.
Shanghai Disney a Mover for DIS Stock?
The project has been developing over the past decade and was scheduled to open in 2015, at a cost of $4 billion. It opened earlier this year at a cost of $5.5 billion. It encompasses 1.5 square miles and is second only to Disney World in size.
That’s a pretty significant overrun, especially for a business that needs to run tight margins. But all this has been measured and sorted out long before they got to the ribbon cutting.
DIS also knows that it takes more than just dropping the Disney brand into nation’s that have their own culture and stories. That’s why the new park has its hedges trimmed to resemble the 12 Chinese zodiac signs and has a hotel shaped as an 8, a lucky number in Chinese culture.
DIS is aware of how it looks to attract up to 50 million guests a year at the park. As CEO Bob Iger said, “We didn’t just build Disneyland in China, we built China’s Disneyland.”
This year, DIS is hoping to see about 10 million guests, with attendance ramping up over the next few years.
Disney has also started looking for ways to increase attendance at its U.S. parks as well. In this flat economy, it has done some price discounting on multiday stays and promotions to increase the value of Disney experience.
On the other side of company is its sports network ESPN. According to recent earnings, ESPN now accounts for about 30% of DIS revenue. That makes it the fastest-growing and most disruptive part of the Disney family.
And the company is wasting no time taking advantage. It recently inked an agreement with Major League Baseball’s web unit that allows DIS stock to take a 33% stake in the company in the next three years. That would be a greater than $1 billion stake in live streaming MLB baseball, increasing the value of its live streaming sports franchise.
The transition is crucial because cable revenues are dropping as more sports fans are turning to alternatives, like live streaming, to watch a game rather than sitting in front of a TV.
Some analysts are so concerned about the shift from cable to streaming that they are suggesting that DIS stock split off ESPN as a separate business so it doesn’t weigh down the parks and content divisions.
But given DIS management’s ability to see far ahead of the trends, the fact that it’s already actively engaged in transitioning ESPN over to a streaming product is a very encouraging sign. It could very well be that in a few quarters, people will be encouraging DIS to spin off ESPN as a white-hot growth property that is being held back by the slow and steady parks and content side.
And once DIS has the streaming technology from its MLB partnership, it can expand it into all live sports events.
The best thing of all: DIS is off about 5% year to date and is oversold. Some analysts expect a 28% upside for the stock in coming quarters. Growth seems to be on track at a steady 6% to 7% in its major divisions.
And while its 1.4% dividend isn’t a show stopper, if you reinvest those dividends, you can build on a solid long-term stock.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
