Disney (NYSE:DIS) is an old and well-established dog, but one that is learning an important new trick. Today we highlight the potential upside opportunity of the addition of more streaming to its family of products — adding Disney+ to ESPN+. This should take Disney stock to a new level.
Investors have already started the process, which is evident from DIS stock’s incredible rally since March. Year to date Disney is up 30%, which is almost double that of the Dow Jones. So clearly it is in favor on Wall Street.
It is tempting to short such a steep rising wedge, but that would be a mistake in the long run. Disney’s new streaming platform will change the game for this company and its bottom line. In fact, it is not too late to add DIS shares into portfolios.
DIS Stock and the Streaming Revolution
Netflix (NASDAQ:NFLX) is the disruptor that made consumers want to consume media in a brand new way. First NFLX started by sending us DVDs by mail, and it had its devout following from the get-go. But then sneakily they switched us all to streaming and we loved it. Sure, they’ve had their fair share of flubs with pricing but eventually management proved itself competent to grow into the giant it is now.
Disney stands to benefit from that starting this year.
So we now know some facts. First, the world wants the media to come to their devices whether it be smartphones , tvs or tablets.
Second, we also know that the delivery method via streaming is the way to go. Most households now have internet connections that are fast enough to accommodate the trend. Moreover, we have 5G coming to make that even more ubiquitous.
So it comes down to content, and Disney has gobs of it. Once they turn the service on, the revenues will flow. And with a good cost basis, the profits should also grow exponentially.
There is not one person on this planet that doesn’t know Disney’s characters, from Mickey Mouse to Darth Vader. It has a huge library of very successful movies that people watch over and over again. And soon they will leverage that by making them available 24/7 from almost anywhere.
The new platform could become the stand-in babysitter for most parents. Regardless of what other forms of entertainment families choose, the Disney streaming application will be among them.
It is important to note that it won’t come down to choosing a winner here. There’s enough room for Netflix and Disney to thrive, so each thesis stands on its own.
Netflix stock is stalled for now. Disney is just starting. They just need to turn on the spigot and let the content flow.
Disney+ pricing sounds like it’s low enough that the signup rate will exceed expectations, and that will make investors grab for more shares, and the rally will continue.
So this is an operational effort for DIS stock once the decision was made to actually do it. Turn it on and the viewership will grow. Going forward, they know how to produce content at a lower cost than their competition, and much of it is very successful. This new delivery method will merely make them more profitable.
Bottom Line on Disney
The ramp in Disney stock is steep, but not enough to warrant shorting it at this point. So is it a buy here? The answer is yes, especially if for the long term.
The truth is that DIS stock has always been a buy. It is one consistent performer that rewards its holders well through thick and thin.
For the investors who prefer to trade around the shorter-term gyrations in the stocks, these are our levels to know.
If DIS stock can set a new high at $143.50 it could start another bullish burst to target $155 per share. The rising wedge also raises the risk of falling back to the $135 zone if the June trend fails.
It is also important to note that if the general equity markets fail in a big way, DIS stock has an open gap to $119 per share that could fill. Although this is not my forecast, it is a scenario that exists.
In summary, the Disney story is just starting a new chapter, one that starts soon and will raise eyebrows on Wall Street. I would want to already be long when people realize that the upside potential is even greater than anticipated.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room free here.
