The Whole of Disney Stock Is Greater than the Sum of Its Parts

Walt Disney (NYSE:DIS) is scheduled to report earnings on Nov. 7. Analysts are forecasting DIS to post lower earnings of 95 cents per share. This would be a -35.8% year-over-year change. On the other hand, revenues are expected to grow 33% year-over-year to $19.03 billion.

Why a fiscal Q4 earnings miss won’t be such a big deal for Disney stock.
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The House of Mouse has beaten estimates for earnings per share in three of the previous four quarters. However, if it were to post an earnings decline on Nov. 7, it would be the second straight quarter DIS has missed on earnings. In the last quarter, the company’s EPS came in at $1.35, which was over 23% below analysts’ expectations.

Will Lower Earnings Spark a Further Decline in DIS Stock?

Disney stock is up nearly 20% for 2019, but the stock has had a choppy six months. After reaching a high of over $146 at the end of July, the stock is down over 10%. Early in October, JPMorgan Chase (NYSE:JPM) analyst Alexia Quadrani lowered her estimates for DIS stock. JPMorgan also lowered its fiscal 2020 estimate to $5.50 to $6.30.

Two issues hang over DIS stock. First, the company is still integrating the assets they acquired from Fox. And second, they are launching their own streaming service, Disney+, which will replace the revenue the company currently receives from cable and satellite subscriptions.

Disney Continues to Grow Beyond Its Theme Parks

Looking at its historical stock chart, DIS stock has never been a high-flyer. In fact, there was a time when investors were souring on Disney stock. The thought was the company needed to have revenue streams beyond their theme parks. Over the past two decades, it’s clear that Disney got the message and has delivered.

For sure, theme park revenue and the associated revenue that comes from guests staying at Disney properties remains a primary driver of growth. However, the company has grown to be so much more. From movies to Disney+, which launches in November, Disney has many more revenue streams than it did 20 years ago.

Of course, with those increased revenue streams comes increased scrutiny. One of the reasons behind the choppy performance of Disney stock in 2019 is concern over the launch of Disney+. But recent news, including the announcement of a partnership with Verizon Communications (NYSE:VZ) that will give wireless customers a free year of Disney+, has soothed investors.

Disney May Still Be the World’s Most Powerful Brand

In February 2016, Disney was named “The World’s Most Powerful Brand” by Brand Finance, a leading independent brand valuation and strategy consultant firm headquartered in London.

In giving their rationale for the decision, the firm noted that Disney’s strength is “founded on its rich history and original creations; however its dominant position is the result of its many acquisitions and the powerful brands it has brought under its control.”

Disney Continues to Be on Brand

A few years ago, I was a Disney skeptic. Let me explain. With the trend toward experiences and adventure travel, I thought that a Disneyland or Disney World vacation might be seen as too traditional, even boring. Particularly for teenagers who often see Disney as a place for little kids.

However, that perception changed two years ago when two of my then teenage children went to Disney World with their high school band. I quickly realized that what was initially a trip for a small, high school band was really an opportunity for families to take a “winter break” to Disney World. Teenagers can hang out together. But the family can still have a lasting memory. And Disney brings in new bands (and new groups of families) every single week. It’s genius.

Plus, Disney continues to take up progressive issues while still maintaining their position as a family brand. As evidence of this, back in 2016, a survey conducted by Forbes found that Disney was considered one of the top 10 most loved companies by liberals and conservatives.

Disney Defines Brand Synergy

Disney is a brand experience that has few equals. The company continues to carry on the legacy of their founder Walt Disney. The creator of Mickey Mouse had a vision. And more importantly, he understood the power of a story. And that story continues to this day.

Right now, some analysts are seeing Disney as a poor buying opportunity because of challenges in one or another area of their business. But in the case of Disney stock, I think investors have to look at the whole company. When they do, I think the synergy between the business units and the relentless attention to staying “on brand” will win the day.

As of this writing, Chris Markoch did not have a position in any of the aforementioned securities.

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