Walt Disney Co (NYSE:DIS) has lost its luster this year. This has been the case with many traditional media companies.
Still, Walt Disney stock price has weathered the storm relatively well. Consider that the return is at break-even for the year. By comparison, Viacom, Inc. (NASDAQ:VIAB) is off 30% and Discovery Communications Inc. (NASDAQ:DISCA) is down about 39%.
The main worry for Walt Disney stock price is the ongoing trend towards cord-cutting, especially with the ESPN division. During the past six years, the business has suffered a loss of 13 million subscribers to 87.22 million.
While this is a serious problem, the fact remains that Disney still has a variety of major advantages — including an amazing brand and a massive platform of assets such as the studio, theme parks and consumer products. Besides, Disney has a long history of adapting to change.
OK then, so let’s take a deeper look at the advantages — and why Walt Disney stock looks attractive at current levels.
Walt Disney Stock Advantage No. 1: Streaming
If anything, cord-cutting actually represents an opportunity. Keep in mind that Disney is taking aggressive steps to create its own streaming platform. By doing so, the company will generate recurring revenues and also build closer connections with customers. This means Disney will be amassing a powerful database to provide insights on how to develop better content. Of course, this has been the case with companies like Netflix, Inc. (NASDAQ:NFLX).
The initial strategy for Disney calls for launching two streaming services. One will offer content like a new Star Wars live-action TV show and other series from Marvel and Pixar. The expectation is that the service will be available during the second half of 2019.
Next, Disney plans a streaming service for ESPN, which will have access to thousands of live sporting events. The app will also be redesigned to allow for highlights and improved content. The service is slated to launch in the spring of next year.
Walt Disney Stock Advantage No. 2: Moat
Unlike many other large companies, Disney has been able to generate enormous synergies across its global platform. This is a moat that allows the company to fend off rivals.
At the heart of this is Disney’s ability to create compelling content. After all, the company is often top on the list for feature film revenues, as seen with blockbusters like Frozen, Zootopia, Finding Dory, Rogue One: A Star Wars Story and Toy Story 3.
And going forward, it seems like a good bet that Disney will continue to crank out mega hits. For example, Thor: Ragnarok has gotten off to a strong start, topping the charts with over $650 million in world-wide revenues.
Oh, and yes, Disney has recently announced that a new Star Wars movie trilogy is in the works, which will involve director Rian Johnson.
Walt Disney Stock Advantage No. 3: Financials
Even with the problems of the cable business, Disney still pumps out robust cash flows, which came to $12.3 billion for fiscal 2017. This has allowed the company to engage in major investments in streaming — such as with the acquisition of BAMTech — as well as the expansion of theme parks.
Something else: DIS stock is trading at attractive levels, with the forward price-to-earnings ratio at roughly 16X. This is currently at a discount to the average market multiple of 19X.
According to analysis from InvestorPlace.com’s Will Ashworth, the break-up value of DIS stock is at $143. This includes $60 per share for the parks and resorts, $25 for the studio, $18 for consumer products and $10 for the media networks. This assumes the exclusion of $11 per share in net debt. In other words, this implies a fairly attractive discount of 28% to the current stock price.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
