Walt Disney Co (NYSE:DIS) reported fiscal third-quarter earnings that, despite Wall Street’s reaction, once more prove that DIS stock is an investment for the ages.
Disney beat on the top and bottom lines by reporting revenues of $14.28 billion and earning $1.62 per share of DIS stock. That was much better than the consensus for revenue of $14.15 billion and earnings $1.61 per share.
Each of Disney’s three largest segments saw year-over-year growth to drive a 9% increase in total revenue. Its Media segment grew 2% to $5.91 billion; Parks & Resorts earned $4.38 billion with 6% growth; and Entertainment grew a whopping 40% to revenue of $2.85 billion.
Furthermore, Disney announced an over-the-top ESPN service after acquiring a 33% stake in streaming company BAMTech for $1 billion.
What Makes DIS Stock So Great
Despite Disney stock being down 8% this year, the initial reaction to Disney’s Q3 earnings was a loss of nearly 2%. Consider this an opportunity, because DIS is just further illustrating how it does everything the right way.
Yes, all conversation will revolve around Disney’s Studio performance. The company now controls one-third of the entire U.S. box office industry, therefore doubling its market share over the last two years behind ongoing success with Marvel, Lucasfilm and Pixar. However, the market expects Disney to dominate the box office both now and for many years to come. That is well-known.
What’s meaningful is how Disney was able to create a solution for ESPN without breaking the bank to do so. Previously, it had been speculated that Disney would acquire Netflix, Inc. (NASDAQ:NFLX) or take years and spend billions to launch an OTT service for its popular ESPN and other Disney content. Well, Disney now has that solution and spent just $1 billion. Not to mention, it was able to secure this deal while giving itself the option to boost its stake and take a controlling interest if the venture is successful.
As a result, the ESPN trouble that has plagued Disney for much of the last year now looks like a low-risk catalyst for the future. Now that it can offer such a service, investors are sure to monitor subscribers for ESPN, and be on the lookout for other exclusive Disney content offerings. That bodes well for long-term DIS stock holders given that ESPN commands a higher price per subscriber than any other cable/satellite channel — something it will surely demand with its new offering.
That said, every facet of Disney’s business is deeply connected. Therefore, Consumer Products & Interactive Media revenue may have fallen 1% to $1.15 billion in the third quarter, but that is sure to change now that OTT services and its partnership with Netflix goes into effect. Moreover, all those billion-dollar blockbuster films that Disney has produced and will produce — like a new Lucasfilm chapter with Rogue One and new installments of The Avengers, Frozen, Zootopia, Beauty and the Beast, etc. — create merchandise, interactive media, and theme park revenue growth.
It’s the connection of all these dominate businesses that makes DIS stock so great, and nearly unbeatable among its competitors.
Icing on the Cake
Disney found an OTT solution for ESPN, Disney’s film pipeline looks incredible, Disney’s theme park is a consistent money maker with proven pricing power, Disney Shanghai is finally open, and its content and merchandise will create higher revenue behind recent licensing deals. Investors get all of this for only 15 times FY2017 EPS.
With the S&P 500 going higher, and a 20x earnings multiple extremely likely for the overall market, DIS stock is a breath of fresh air at just 15x forward earnings. It is one of the most iconic brands in history, and one of the best performing large companies in the world, all bundled together in a value stock.
No, it makes no sense, but thankfully, stocks tend to reflect the operations of a businesses underlying performance, eventually. In the case of DIS stock, this is great news for investors, and a great reason to own it.
As of this writing, Brian Nichols was long DIS.