Entertainment giant Walt Disney Co (DIS) continued to roar along its torrid earnings path, as it posted a solid fourth quarter and an outstanding year.
While DIS stock looks to open Friday trading slightly down, Disney has been on a tear this year and might be only momentarily slowed. Disney’s earnings were solid, so it’s likely the market’s initial response is just a little bit of profit taking.
Long-term investors should continue to hold on tight to DIS stock.
Disney Earnings
Chairman Robert Iger rightly pointed out that Disney’s full-year earnings notched new record highs for the fourth year in a row. Adjusted earnings per share came to $4.26, 26% higher year-over-year, while revenues were 8% better at $48.8 billion.
Meanwhile, fourth-quarter earnings grew 12% to 86 cents per share, missing estimates by 3 cents, on revenues that grew 7% to $12.39 billion, which just topped the consensus.
Results were driven by the success of the studio entertainment division, which includes the blockbuster hit movie Frozen. Disney’s movie segment doubled its operating income. Sales of merchandise from the movie Frozen drove the consumer products division, with prospects for Frozen role-playing dresses remaining strong for the holidays.
It’s easy to see why the movies are drivers for Disney right now, as the studio has the much anticipated Avengers: Age of Ultron in the pipeline as well as the new Star Wars film, The Force Awakens. Disney continues to hit home runs with its created content, as a string of Marvel superhero movies in the last few years has shown.
But while movies are of huge importance to DIS stock, there’s a lot more to Disney than its studio.
Strong performances by its parks and resorts segment also buoyed results. More spending by visitors to the parks, as well as more people simply going to the parks, did the trick.
Even when Disney encounters difficulties — such as higher contract rights fees in its sports segment at ESPN — the company is able to offset this with higher affiliate fees and other income.
Why You Should Love DIS Stock
Disney has its detractors, but it’s hard to fault the execution of its business. The way the content and products often blend across segments, such as the sales of 3 million costumes this year based on the movie Frozen, is a real synergy that many other companies can only dream of.
Disney’s also a shrewd dealmaker. Over the years, big-ticket deals for ESPN, Pixar and Marvel have been met with resounding success, but DIS is always busy making smaller deals, too. The new agreement with Apple (AAPL) and Google (GOOG) which allows Disney content to be played on both those companies’ digital devices is one such example.
And once you consider the portfolio of assets Disney has amassed, it’s clear why DIS is so formidable.
You want TV programming? OK, CBS (CBS) has it, so does Twenty-First Century Fox (FOXA). But Disney’s there in a big way with ESPN and ABC. Movies? Lions Gate Entertainment (LGF) has some success, but Disney’s all over that. Disney continues to produce blockbusters from the many Marvel Comics creations as well as animated and other features. And Disney does with its amusement parks at least as well as pure amusement park operators Six Flags Entertainment (SIX) and Cedar Fair (FUN) do.
Disney used to be a sleepy, slow grower — a pale blue chip favored by investors regarded as unimaginative. But DIS stock has tripled in price in the past five years, reflecting the underlying strength of the business. Disney has become more attractive as a growth property, as the company has continued to execute, grow its businesses and stay nimble in the fast-changing entertainment world.
DIS stock currently sells for just more than 20 times earnings, which considering the way the company is piling up revenue and income, is not excessive. Long-term holders have no reason to let go right now, and both they and potential buyers alike should look for dips, like when the recent market slide sent the stock down to nearly $80. Over time, DIS stock will continue to confound its critics and deliver big profits for investors.
Disney has its footprint everywhere and does many things well. Under CEO Robert Iger it continues to push its boundaries, expand and innovate. And Disney always replenishes itself with new content. There’s no other company quite like it.
As of this writing, Greg Sushinsky was long AAPL, DIS, FUN and GOOG.
