I Liked Walt Disney Co Before, But Fox Makes It a Must-Have

Disney is building a war chest to go after Netflix

By Luke Lango, InvestorPlace Contributor


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I’ve been saying for a while that the whole reason to buy Walt Disney Co (NYSE:DIS) stock is since the media giant is about to launch direct-to-consumer (DTC) streaming services. Y’know that whole cord-cutting problem? Those DTC launches essentially solve it overnight.

Consequently, when I hear that Disney is about a week away from purchasing studio and television production assets from fellow media giant Twenty-First Century Fox Inc (NASDAQ:FOX), I get more bullish on DIS stock.

Why? Disney is building a war chest full of the best content in the world. Through acquiring Pixar in 2006, Marvel in 2009 and LucasArts in 2012, Disney has already amassed the most-watched content portfolio in the world. Adding 20th Century Fox films into the fold would only further strengthen Disney’s content pipeline.

That is critical. Disney’s push into the DTC entertainment world, where content is all that matters, puts it in direct competition with current-streaming stalwart Netflix, Inc. (NASDAQ:NFLX). Consumers will have streaming options for days, and the differentiating factor will be content.

The better the content, the more consumers will flock to your platform.

And Disney absolutely has the best content. Bringing 20th Century Fox’s portfolio of established entertainment brands will only give Disney’s 2019 streaming service more firepower.

Fox Is Perfect for Disney

20th Century Fox content fits perfectly into the broad Disney content portfolio.

The most obvious benefit here is the bringing back of sci-fi franchises such as X-Men and Fantastic Four into the Marvel Cinematic Universe. X-Men and Fantastic Four are traditional Marvel comic properties that Disney didn’t acquire when it purchased Marvel Studios back in 2009. Not owning those franchises has forced Disney to leave certain Marvel storylines off the table.

Now, Disney can create a whole array of new movies that integrates these traditional franchises with The Avengers and Guardians of the Galaxy.

The second most obvious benefit here is the morphing of two great animation studios. Through Pixar, Disney is behind some of the greatest animated films of our time, including Toy StoryFinding NemoWall-E and Up. But 20th Century Fox Animation is also behind some great animated films, including the Ice Age and Rio franchises. Blending all these great animated films into one streaming offering will prove to be a huge value proposition to consumers.

The other benefits include Disney acquiring Avatar, the top worldwide grossing film ever, and a plethora of other films with diverse target audiences. Those films include Cast Away, the Home Alone franchise, The MartianIndependence Day and The Revenant, among many others.

All together, Disney and Fox were behind six of the top seven grossing films last year. So far this year, the two studios are behind four of the top eight grossing films.

Now, put all of those movies on one streaming platform.

Through years of acquisitions, Disney has amassed a war chest full of the best content in the world. Adding Fox content to the mix shows that Disney’s war chest is only growing.

That is great news for DIS shareholders. The more that war chest grows, the more levered Disney is to deliver an unparalleled streaming platform in 2019.

Bottom Line on DIS Stock

This is still a good time to buy DIS stock, before future catalysts kick-in and while the stock remains relatively undervalued.

Over the past 5 years, DIS stock has traded (on average) above 20x trailing earnings. Today, DIS stock trades under 19x trailing earnings. That doesn’t make much sense.

Disney’s growth over the next several years will be supercharged by the company’s entry into the DTC entertainment space. Plus, tax reform is coming, and that is big for Disney, who pays an effective tax rate between 30% and 35%.

Overall, I’m bullish on DIS stock. News that Disney will acquire critical Fox entertainment assets makes me only more bullish.

As of this writing, Luke Lango was long DIS and NFLX.

Article printed from InvestorPlace Media, https://investorplace.com/2017/12/fox-makes-dis-stock-a-must-have/.

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