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Naman Shukla
Naman Shukla
Articles (217) 

Disney Is a Great Long-Term Pick

Despite ongoing ESPN woes, the company is well poised to grow in the future

April 20, 2017 | About:

Walt Disney Co. (NYSE:DIS) was almost flat in 2016, but the stock is off to a great start this year as it is up nearly 9% year to date. Throughout the past several years, many investors have become doubtful about buying the stock due to its enduring troubles at ESPN, which generates a significant portion of its overall revenue.

Although Disney’s ESPN platform continues to lose subscribers at a strong rate, it still remains a valuable cash cow for the company, generating more than $11 billion in revenue per year. Moreover, the company’s media network segment also consists of several other platforms apart from ESPN, which helped it to report flat sales and profit growth in the prior year.

Despite the ongoing woes at ESPN, the company has efficiently managed to grow well on the back of its successful parks and resorts as well as its studio entertainment businesses. The entertainment juggernaut’s acquisitions of the Star Wars franchise, Marvel and Pixar have essentially made it immune to a vacillating box office system.

Disney reported decent first quarter results in February. For the quarter, the company recorded earnings per share of $1.55, surpassing the analyst estimates by five cents. The company’s revenue came in at $14.78 billion, missing the consensus by $480 million. That figure also represents a 3% year-over-year decline.

Moving ahead, the company’s parks and resorts business displayed revenue and operating income growth of 6% and 13%, respectively. That growth was mainly driven by surges in domestic and international businesses. The company’s international growth was primarily due to the inauguration of Shanghai Disneyland.

On the other hand, the company’s studio business is displaying signs of upward momentum. In fiscal 2016, the company led the industry with a record $7.5 billion in box office revenue. The company released its live-action version of “Beauty and the Beast” this year, which performed very well. Furthermore, the company is on its way to release many other exciting movies such as “Thor: Ragnarok” in the approaching quarters.

As a result, these upcoming movies will surely help the company grow its revenue at a healthy rate in the year ahead.

When it comes to the dividend, the entertainment juggernaut’s forward dividend yield of 1.37% might not look impressive, but the company has successfully managed to increase its dividend by a strong rate over the years. Most importantly, the company’s payout ratio currently sits at just 26%, which suggests there is still plenty of room to grow its dividend in the future.

Conclusion

Over the past few quarters, Disney’s ESPN platform has lost numerous subscribers. The company, however, is taking steps to address this issue. On the other hand, the company’s parks and resorts and studio businesses continue to deliver strong results and will continue to perform well in the long run.

Apart from this, the stock currently trades at a price-earnings (P/E) ratio of approximately 20, signifying it still has huge upside potential. As a result, investors should continue holding the stock as its future prospects look good.

Disclosure: I do not hold a position in the stocks mentioned in this article.

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