Disney’s (DIS, Financial) new "Star Wars: The Force Awakens" debuted in the company’s first quarter of 2016 on Dec. 18. Since its debut it has reported $740 million in sales, resulting in the second highest box office film revenue in history. While only one part of the conglomerates revenue contribution in Studio Entertainment, it appears the film’s strong start will help lift Disney’s revenue and profit in the first quarter, which ended on Dec. 31.
With "The Force Awakens," the main contribution will be to Studio Entertainment, which generated 13% of revenue in the fourth quarter and 14% of revenue for 2015. Revenue from the Star Wars debut has beat estimates, signaling that the movie’s release will likely be the revenue catalyst the firm had hoped for in 2016. In its opening weekend, Star Wars reported sales of $247.7 million beating estimates of $238 million.
The strong start for the film will significantly help Disney in a number of ways. First, it sets Disney up for ongoing success in subsequent releases of Star Wars films, for which it has three additional films planned through 2017. Second, it also strengthens sales for Star Wars affiliated revenue, which has been a main initiative for the firm. Disney has released a full product line of toys and games in its retail stores. It has also expanded its parks and resorts to include Star Wars theme lands.
With Star Wars affiliated revenue contributing to nearly every segment for the firm, it appears the better than expected results should only help the firm to see continued revenue and earnings growth in 2016. Currently, analysts are estimating revenue growth in the first quarter of 19% with EPS growth of 22%. For the year, analysts are expecting revenue growth of 15% and EPS of 9%.
While the Star Wars debut has been strong and revenue has been growing from affiliated products, Disney’s stock valuation has not followed suit. Year-to-date the stock is down 5.58% at $99.22, and since Star Wars' debut, the stock is down 12.8%. With a leading industry PE ratio of 20.19, the stock is often more vulnerable to downside volatility, which has been the case in the market’s recent broader market selloff. However, the company’s strong earnings estimates and sales expectations indicate the higher P/E ratio remains warranted, and now could be an opportune time to buy Disney at a discounted price.
Disclosure: I do not own any shares of Disney.
