It must have been one long, remote vacation if you’re just now hearing about Walt Disney Co (NYSE:DIS) buying Twenty-First Century Fox Inc (NASDAQ:FOX, NASDAQ:FOXA) for more than $52 billion. Whether or not you were aware of the deal, you may be wondering if now’s the time to buy DIS stock.
I think one can make a very good case for buying Disney stock, although they may have to live through some short- to medium-term turbulence in the meantime.
So why should you own DIS stock?
Disney has a lot of long-term opportunity, in my opinion, and that starts with Fox. When consumers think of entertainment (movie and TV wise) it’s hard to ignore Disney. With the Star Wars and Marvel franchises, Disney is a stud on this level alone.
Throw in animated movies via Pixar, along with Disney Channel, ABC and ESPN on TV and you’re looking at a formidable leader in the entertainment space.
As if that all weren’t enough, Disney will now add 20th Century Fox for films and 20th Century Fox Television. The TV production house makes and has had made a number of hit franchises, as has its studio division.
Speaking on the latter, we’re talking about movies franchises like X-Men, Fantastic Four, Avatar and Planet of the Apes. Its animated division includes franchises like Ice Age and Rio.
Don’t you think Disney, which rather routinely churns out hits grossing more than $1 billion worldwide, will have a place for these franchises? Further, it can combine its previous hits (from Marvel for instance) to make new story plots with Fox and generate even more revenue.
While a combined Fox and Disney unit will be able to churn out new hit after new hit, don’t forget about what Disney is inheriting.
Many don’t know that Fox controls the distribution rights to the first Star Wars film, Episode IV: A New Hope. That will be a big key to controlling the entire series, as it was not part of Disney’s deal with Lucasfilm.
Movies like Life of Pi, The Martian, Deadpool and Independence Day, are all under the Fox umbrella as well. Going forward that will matter, quite a bit actually.
Thinking Longer Term on DIS Stock
It plans to introduce two new streaming products, with an ESPN platform coming this spring and another platform for its non-ESPN content next year.
By buying Twenty-First Century Fox, Disney substantially increases the type of content for that platform. The company said the products will be priced below that of Netflix. While that sounds like a low-revenue opportunity, consider a few things.
First, Netflix is pouring some $8 billion into content in 2018. Disney may pour a lot of money into content too. But it has TV networks, advertising and box office sales to reap as well. Further, it has parks, hotels and merchandising to take advantage of.
By boosting the library for it streaming platform with Fox, Disney can quickly build a rather attractive product for consumers, especially at a sub-$10/month price tag.
Further, with its acquisition of Fox (assuming regulators allow it) Disney doubles its 30% stake in Hulu, giving it 60% control. While Hulu is a distant player to Netflix, it gives Disney yet another streaming option for the future.
Additionally, more content, particularly through Avatar, X-Men, etc., can make Disney’s parks that much more engaging too.
Trading Disney Stock
All that’s great for the next 2 to 10 years, but what about DIS stock in the short term?
In its simplest form, DIS stock is promising to me. Although resistance sits between $113 and $115, shares continue to put in a series of higher lows. That bodes well for DIS stock to eventually break through resistance and target the low-$120s.
Additionally, the 21-day moving average remains good short-term support. Roughly $110 should also act as support.
The only hang up? DIS stock has fading momentum. That’s visible by the MACD (blue circle). However, I wouldn’t let this deter me from buying DIS stock near current levels.