Shares of global media giant Disney (NYSE:DIS) have had a rather unimpressive run over the last three years. During that stretch, Disney stock is up just over 10%. The S&P 500 index, meanwhile, is up more than 30%, while the Nasdaq Composite index is up 50%. Against those numbers, DIS stock’s 10% gain is an unimpressive showing, and that can blamed almost entirely on one major headwind: cord cutting.
As cord-cutting trends accelerated over the past several years, Disney struggled to optimally monetize its treasure chest of content because the company hasn’t had the right distribution. They were all linear. Consumers were moving to all streaming. Disney was late to catch that boat, and as such, DIS stock has struggled to gain ground.
But, that headwind could turn into a tailwind in 2019 with the launch of Disney+, the company’s highly anticipated streaming service.
Meanwhile, everything else at Disney — from the parks empire to the movie business — is firing on all cylinders, and should remain strong for the foreseeable future. Also, because DIS stock hasn’t gained much ground over the past several years, the valuation is attractive — 13.5x trailing earnings and 15.14x forward — and conducive to a huge rally in the event of a positive catalyst emerging this year.
Overall, Disney stock looks good here. Most things at Disney are great. The one bad thing that has kept Disney stock down over the past several years could turn into a great thing in 2019. And, the price is right on the stock.
Put all that together, and you have three compelling reasons to buy Disney stock in 2019.
Most Things At Disney Are Great
Ignoring the company’s struggling Media Networks operations, everything else at Disney has been really strong over the past several years.
The Studio Entertainment business has been red hot, thanks to Disney simply dominating the box office through multiple blockbuster hits from the Marvel and Star Wars franchises. In each of the past four years, Disney has been the name behind the year’s top grossing movie. Also, in each of those years, Disney accounted for at least three, and often four, of the top five grossing movies in a year.
That’s box office dominance. And, it’s set to continue. The Marvel Cinematic Universe lends itself to thousands of characters and potential story-lines, only a handful of which have been made into movies thus far. The same is true on the Star Wars front. Then there are the Pixar movies and classic Disney remakes, both of which have secular interest and demand.
Overall, Disney’s Studio Entertainment business is positioned for continued success over the next several years.
Huge Studio Entertainment success has propelled equally huge success in the Parks & Resorts business. The connection is pretty simply. The Parks & Resorts business is simply the physical manifestation of the content that drives the Studio Entertainment business. Example: Disney launches a few Star Wars films. Then, they create Star Wars: Galaxy’s Edge, a Star Wars-themed extension at Disneyland. This stimulates demand, which Disney capitalizes on by hiking prices. Net result? Higher traffic at higher prices.
This “create the movie, then create the park attraction, and hike prices” strategy has been implement before, and will continue to be over the next several years. As such, as goes the entertainment business, so goes the parks business, and that gives the parks business an exceptionally favorable growth outlook over the next several years.
So, everywhere besides the Media Networks segment, Disney has been, still is, and will remain very strong.
The One Bad Thing Could Be A Great Thing
There’s no hiding that the Media Networks business has struggled because of cord cutting. As demand for linear TV consumption of Disney’s content has dropped, Disney’s media revenues and profits have struggled to grow, and this has kept a lid on DIS stock.
But, that could all change in 2019 with the highly anticipated launch of Disney+.
The argument here is that Disney’s content is in very high demand. Just look at the box office results. Or look at the list of “Trending Now” on Netflix (NASDAQ:NFLX), which is often dominated by Netflix originals and Disney titles. Clearly, there’s nothing wrong on the demand side when it comes to Disney’s content. This is, unarguably, the type of content that people are willing to pay to see.
The problem, instead, is on the supply side. While consumers have pivoted to streaming services over the past few years, Disney has been slow to catch on to that trend, and the majority of its post-box office content distribution has been through linear TV. In other words, Disney’s post-box office supply of content hasn’t been where the demand is.
That’s about to change as Disney+ is set to launch in late 2019. Demand for this service will be huge. Not only will it feature all of Disney’s beloved and widely consumed box office content, but it will also feature unique Disney originals that can only be seen through Disney+ (this is a page right out of the Netflix playbook). Also, the price is right, as the rumor is that Disney+ will be substantially cheaper than Netflix.
Overall, then, Disney’s one bad thing (cord cutting) is about to turn into a good thing in 2019 with the launch of a highly anticipated streaming service. That could change the entire outlook going forward for DIS stock.
Bottom Line on DIS Stock
The great things about Disney stock will remain great, and the bad thing could turn into a great thing in 2019. Meanwhile, the price is right at just 15x forward earnings. As such, 2019 could be a breakout year for Disney stock.
As of this writing, Luke Lango was long DIS and NFLX.
