One of the most fascinating business stories of recent years has been whether the big media titans that dominated the media environment of the 20th century can adapt to the new world of smartphones and streaming services. Among Hollywood’s stalwarts is Disney (NYSE:DIS), which has aggressively moved to stay ahead of the curve. Before you buy Disney stock, consider these pros and cons of one of media’s most powerful entities.
The conglomerate recently made a move that should pay off big: After fending off rivals such as Comcast (NASDAQ:CMCSA) Disney has finalized a deal to buy an enormous piece of 21st Century Fox’s assets. Disney’s top managers, including CEO Bob Iger, believe that acquiring Fox’s film and TV production operations will enable Disney to stay one step ahead of upstart rivals like Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX).
Once it integrates all the new Fox assets into the existing Disney network of production and distribution, the company is planning to launch its own standalone streaming service before the end of 2019. Competition is already fierce in that market, with Apple (NASDAQ:AAPL) also making noises about getting into it. But Disney has been supplying popular content for almost a century, so investors would be foolish to bet against it.
Of course, Disney was a movie studio before it was anything else, and the company has been getting fantastic results so far this year in that segment. Black Panther became a pop culture phenomenon as well as a box office blockbuster, and fans are already eager for the sequel. Avengers: Infinity War and Incredibles 2 were also big hits.
One possible negative on the horizon for Disney has been the declining performance of its once-mighty cable sports channel, ESPN, which has been hurt by a variety of factors, including the ongoing political controversies involving the NFL and the increasing migration of younger fans toward niche markets like mixed martial arts. But Disney still has several well-placed assets in the TV segment, including the ABC broadcast network.
Diverse Operations
The diversity of Disney’s operations is positive for Disney stock. In addition to the entertainment content discussed above, Disney’s theme parks and merchandise are world-famous and attract a steady stream of customers.
The price of DIS stock has been sliding in recent weeks. Is this a pro or a con? The downturn happened because many analysts were underwhelmed by the company’s latest earnings report. Its third-quarter earnings per share came in at $1.87, eight cents less than the consensus prediction.
In fact, DIS stock has been a bit of a laggard over the last three years, although its appreciation during the preceding five-year period was quite strong.
Shares of Disney have climbed 260% over the last ten years, which outpaces the S&P 500’s 127% climb. However, during the last five years, DIS stock is up just 75% compared to the S&P’s 72%. DIS stock has moved sideways over much of the last three years, lagging the index and its industry.
The conglomerate’s latest financial results tip the balance toward the “pro” side. The stock’s price-earnings ratio of 14 is now below the market average, which seems very low for a company that has been an industry leader for so long and continues to innovate. The stock’s dividend yield of 1.5% is nothing extraordinary, but Disney’s enormous cash flow – almost $10 billion during the last 12 months – makes the payout very secure.
So the final verdict on DIS stock is that the recent decline in the price represents a buying opportunity since the shares would be an excellent addition to a long-term growth portfolio.
As of this writing, the author did not hold a position in any of the aforementioned securities.
