Why ‘Star Wars’ Provides New Hope for Walt Disney Co Stock

Forget about Disney's massive acquisition for a moment and focus on its 'Star Wars' franchise

By Will Ashworth, InvestorPlace Contributor

Walt Disney Co Stock Is a Bit of a Mess, but Look at the Bigger Picture!

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Left for dead just months ago, Walt Disney Co (NYSE:DIS) and Disney stock look ready for a very prosperous 2018. 

First, it goes without saying that the significant catalyst in the coming year will be making substantial progress toward closing its $66-billion, all-stock acquisition of the Twenty-First Century Fox Inc (NASDAQ:FOXA) entertainment businesses.

CEO Bob Iger is staying on as Disney’s chief executive until the deal gets closed in 12-18 months. Speculation is high that regulatory hurdles could jeopardize completing the acquisition.

So, if Iger gets the deal done inside of 12 months, Disney stock likely jumps much higher than where it currently trades around $112. However, in a year, if the deal looks as iffy as the AT&T Inc. (NYSE:T) buyout of Time Warner Inc (NYSE:TWX), Disney stock’s got nowhere to go but down.

To say a lot is riding on the deal is an understatement.

The Latest Star Wars

My wife and I have a New Year’s Day tradition to take in the newest Star Wars movie. This year’s installment — The Last Jedi — was an entertaining two-and-a-half-hour romp.

We’re not Star Wars fanatics, mind you, so it was a bit of a downer to read many purists felt the movie was too long and filled with bad jokes and weak plot lines.  

I didn’t see it that way. I grew up in the movie theater business and have watched a lot of films over the years, including Reds with Warren Beatty, a movie so long even he thought it was a bit much. But then I went merely to be entertained, not converted to some Utopian vision from George Lucas.

Anyway, the first thing I thought coming out of the theater New Year’s Day: “Boy, did Disney ever get a bargain paying $4.1 billion for Lucasfilm in 2012.”

Here’s what the Hollywood Reporter says about this subject:

From the get-go, Wall Street analysts lauded The Walt Disney Co.’s decision in 2012 to buy Lucasfilm — home of George Lucas’ Star Wars franchise — despite a high price tag of $4.06 billion… Combined, Disney and Lucasfilm’s Star Wars: The Last JediRogue One: A Star Wars Story and Stars Wars: The Force Awakens have surpassed $4.06 billion in ticket sales at the worldwide box office.”

Bottom line is the 2012 acquisition is going to pay enormous dividends for Disney shareholders for years to come.

Disney’s 10-K

A quick search through Disney’s 2017 annual report brings up “Star Wars” a total of 24 times, all detailing revenue-generating initiatives involving the popular movie franchise.

Here are a few examples.

1. The company is opening a Star Wars-themed area at Disney’s Hollywood Studios in 2019.

2. It’s also opening a Star Wars-themed area at Disneyland, also in 2019.

3. The company licenses its major properties, including Star Wars, for third-party products. Also, it sells Star Wars-related products in its 365 retail stores around the world.

As Stars Wars goes, so goes Disney.

Bottom Line on Disney Stock

In late December, I argued that Disney ought to reconsider spinning off ESPN in whole or in part to generate some cash to repurchase shares used to buy Fox. I first suggested this idea back in 2012.

With the addition of Lucasfilm and the potential movie franchises from a Fox acquisition — Avatar, Planet of the Apes, X-Men — Bob Iger could return Disney to its moviemaking roots.

Naysayers might consider this unwise given the box office hasn’t been all that healthy in 2017,  but history shows that movie attendance always bounces back with good content, regardless of technology threatening to kill the golden goose.

Star Wars should lead Disney stock into a new era.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2018/01/why-star-wars-provides-new-hope-for-disney-stock/.

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