Disney: An "Entertainment Ecosystem"

04/26/2016 8:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Our latest featured stock has assembled an unrivaled entertainment ecosystem, explains blue chip growth stock expert Richard Moroney, editor of Dow Theory Forecasts.

Through a series of deals, Disney (DIS) has merged the intellectual property of Pixar, Lucasfilm, and Marvel with its own legacy films and characters.

Fans of the movies can buy related toys and merchandise, and visit theme parks to immerse themselves further in the fictional worlds, all without straying from the Disney umbrella. Disney is a long-term buy.

The stock also enjoys superior operating momentum, with earnings per share surging 21% in the last 12 months on 9% higher revenue.

Disney’s studio unit (14% of sales in fiscal 2015 ended September, 13% of operating income) has produced a string of hit movies, including Star Wars: The Force Awakens, Zootopia, and The Jungle Book.

Concerns weighing on the cable business probably won’t lift any time soon. ESPN’s subscriber base has fallen 8% from its 2010 peak, while Lifetime and A&E have also shed subscribers in recent years.

In addition, rising programming costs have squeezed profitability. Somewhat encouragingly, the pace of subscriber losses slowed to 2% in the December quarter, versus 3% in fiscal 2015 ended September.

However, Disney’s studio is backed by several strong franchises with built-in audiences. With Disney’s busy slate of forthcoming sequels, its studio could achieve the previous predictability of its cable business.

The success of its films supports demand for merchandise tie-ins offered by its consumer-products business.

Meanwhile, trends at US theme parks are so strong that Disney was able to raise its ticket prices. Shanghai Disney should open in June. The shares trade at 19 times trailing earnings, near their lowest level in three years.

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By Richard Moroney, Editor of Dow Theory Forecasts

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