It’s been a difficult week for Walt Disney Co (NYSE: DIS) as the company dealt with the repercussions of a racist tweet from the lead in one of its highest rated sitcoms.
Earlier this year Roseanne Barr relaunched her self-titled sitcom after taking an 18-year break. The show attracted a massive audience and ranked at the top of Nielsen’s broadcast ratings every week following its premier on Disney’s ABC network.
The show was due to become an advertising giant for DIS. This was something the company was in dire need of considering that ad sales were down in the second quarter.
However, Roseanne took to Twitter on Monday morning making a racist remark regarding Valerie Jarrett, an adviser for the Obama administration. By Tuesday afternoon, the show had been canceled, and CEO Bob Iger announced as much via his own tweet.
On Tuesday, Disney stock made its way below $100 per share, but on Wednesday, the share price started to improve as investors saw their moment to buy a bargain. DIS is currently trading slightly below $100 per share, but it won’t be there for long.
Sure, the Roseanne cancellation isn’t ideal considering that its popularity was a huge draw for advertisers. And yes, the company is facing some headwinds. But DIS is a great long-term pick for investors who are willing to wait out the choppiness — especially at around $100 per share.
The Fox Deal
A big part of the reason Disney stock has been so volatile this year has been the company’s attempted takeover of Twenty-First Century Fox Inc (NASDAQ:FOXA).
In an effort to secure its place in the future of streaming, Disney planned to acquire FOX assets, but worries about regulatory issues coupled with the entrance of Comcast Corporation (NASDAQ:CMCSA) as a new suitor has thrown a wrench into those plans. For that reason, Disney stock has been moving up and down considerably based on the most recent news from the ongoing struggle.
May was a tricky month for DIS stock because news broke that Comcast was prepared to up its offer to buy not only Sky, Fox’s European broadcast network, but the majority of Fox’s assets as well. CMCSA has apparently lined up $60 billion in cash to offer Fox, a significantly higher price than Disney had been willing to pay.
However, the rumored CMCSA offer is conditional. The media giant is apparently waiting to see whether a judge will rule in favor of the AT&T Inc. (NYSE:T) and Time Warner Inc (NYSE:TWX) merger before going ahead with its own acquisition offer. If accepted, the new offer would leave DIS with nothing.
The ruling is due to come down on June 12, at which point we’ll either see DIS stock soar or stumble. If the judge rules in favor of the TWX and T merger, Comcast could push Disney out of its acquisition plans. But the opposite ruling would be good for DIS investors.
I personally see the trial going in TWX and T’s favor in a few weeks, but if you’re buying Disney stock as a long-term investment, I don’t think it really matters unless you’re hoping to buy in at an even deeper discount.
The Case for Disney
Even if DIS doesn’t get the chance to acquire Fox, it’s still a strong player in the streaming space. A lot of the reason for Disney to get a hold of FOX’s assets was to boost its catalog of quality programming.
But DIS has a pretty strong portfolio all on its own, and its collection of hit franchises like Star Wars and Marvel gives the firm a great jumping-off point to create new content that will drive people to sign up for its streaming service.
Not only that, but Disney has a boatload of cash behind it that will help not only build out a killer streaming service from scratch, but weather the storm that has hit the media sector. Disney is a cash-generating machine which makes it a relatively safe long-term play and should give investors confidence in its dividend yield.
Bottom Line on Disney Stock
Disney stock has certainly been hurt by recent events, and the stock might hit another bump in the road come June 12 when the AT&T and TWX merger ruling is released. But the company is well positioned to succeed even if the FOX deal falls through.
As far as losing Roseanne, it’s a shame because the hit show looked like a much-needed advertising boost for DIS. But the bottom line is that the company needed to pull the plug in order to maintain its family-friendly image and ensure its business isn’t associated with racism.
Roseanne would have cost the company more than its advertising draw brought in, especially with such a volatile lead actress loose on Twitter.
DIS stock is the kind of stock you buy to hold on to, and with the share price at just $100, there’s certainly a great entry point.
As of this writing, Laura Hoy was long TWX.