The retirement of Walt Disney Co (NYSE:DIS) CEO Robert Iger is likely not going to be 2019, and this is a good thing. He has proven to be a great leader and investors have certainly been well-rewarded. For the past five years, the average return on DIS stock has been about 18%.
Going forward, the company will certainly need his abilities. Note that Disney appears to be poised to acquire various assets from Twenty-First Century Fox Inc (NASDAQ:FOX), which will require quite a bit of heavy lifting. There will also need to be lots of effort to launch two streaming services. In light of all this, it’s a good idea to have continuity, right?
Definitely.
But of course, for readers of InvestorPlace.com, what does this all mean for Walt Disney stock right now? Is it a good buy? Well, I think so. For the most part, the long-term potential for DIS stock looks standout.
A Look at DIS Stock
OK so first of all, let’s take a deeper look at the Fox deal. Now it’s true that there are considerable risks, such as with the melding of two cultures and infrastructures. But then again, DIS has proven to be effective with M&A deals. Just look at the results of purchases of Marvel, Pixar and the Star Wars franchise from George Lucas.
Besides, Fox should provide major synergies, which will likely drive Walt Disney stock. Here’s a look:
- Film Franchises: This is probably the most important factor that will help Walt Disney stock. Fox has a treasure trove of content, such as “Avatar” and Marvel’s X-Men (this asset was licensed away before Disney purchased Marvel). According to InvestorPlace.com’s Luke Lango: “Disney can create a whole array of new movies that integrates these traditional franchises with The Avengers and Guardians of the Galaxy.”
- Animation: Keep in mind that Fox has a several top-notch franchises, including Ice Age and Rio.
- TV: Fox has wide distribution as well as engaging shows. Some include Empire, Modern Family, American Horror Story: Roanoke and American Dad. For the 2017-2018 season, FOX Broadcasting had the highest number of returning shows in a decade.
No doubt, a combination of Disney and Fox will lead to considerable cost reductions as there are many duplications for the two organizations. What’s more, there are drivers for the top-line too. Disney can gin up lots of opportunities for synergies across the theme parks and merchandise units. This is a playbook the company has demonstrated consistent success.
But there is something else: FOX will provide much needed content for the upcoming streaming service, which is slated to launch in the second half of 2019. This initiative appears to be a major priority as Disney has acquired a leading technology provider in the space, BAMTech. Oh, and the Fox deal will increase Disney’s interest in Hulu to 60%.
The streaming opportunity is enormous, as seen with the success of Netflix, Inc. (NASDAQ:NFLX). People generally want to consume quality content on an anytime, anywhere basis. They also want affordable options.
And Disney should be able to meet the challenge. Besides, the company will benefit from recurring revenues as well as having much closer connections with customers, which means amassing a valuable database.
Bottom Line on DIS Stock
DIS stock is definitely not without its issues. Let’s face it, the trend of cord cutting will likely continue to weigh on the company.
But technology transformations can be great opportunities as well. And this appears to be the case with Disney. The company is boldly making the right investments to position itself to benefit. And if there is a CEO who can pull it off, Iger is that person.
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.
