Disney’s Pullback Is a Great Opportunity: Here’s Why

While the dying Star Wars hype has pushed Walt Disney Co (DIS) back considerably from its 52-week highs, the stock looks like a good pick off the pullback. Despite the fear that cord-cutting could have an adverse impression on its cable network profit center, the company managed to beat EPS estimates as well as revenue in the third quarter.
For the third quarter, the company reported earnings per share of $1.62, $0.01 better than the estimates.
The company’s revenue came in at $14.3 billion, beating the estimates by $130 million. That figure signifies a top-line surge of 9% on a year-over-year basis.

Cord cutting is making things difficult for the company, as people can get content on the internet, on demand as well as cheaper. Moreover, people can use their smartphones, TV, etc. to access the content, and this trend is gradually increasing.
Disney’s Pullback Is a Great Opportunity: Here’s Why
Image by / c1.staticflickr.com
In the case of Disney, many stockholders are worried about cord-cutting, but they should also keep in mind that the most significant asset is the content itself because content is king. On that part, Disney is the king of content.

On the other hand, revenue generated from its media networks segment accounts for the 48% of the company’s overall revenue. Still, Disney is a fairly diversified company.

In the most recent quarter, Disney’s parks and resorts produced $12.6 billion and $2.6 billion of operating income in the starting nine months of the year, with robust performance at its domestic parks balancing frailer performance abroad. Costs allied with the inauguration of new Shanghai Disney Resort hurt profits, but the new park proposes a significant growth prospect for the company. 

Apart from this, the company’s studio entertainment business has been escalating at a very rapid rate, as the operating income and revenue were up 61% and 37% year-over-year, respectively, throughout the first nine months of the year.

A blue-chip stock at a discount

All in all, Disney’s business is still strong. Although it does face some competition from the likes of Netflix, Inc. (NFLX), I think the company’s diverse revenue stream makes it a good pick on the pullback.

Going forward, investors can also expect Disney to try to buy Netflix out to improve its content and weakening media business, which will be a good move for long-term investors.
Published on Oct 6, 2016
By Prudent Investor

Copyrighted 2016. Content published with author's permission.

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