In three weeks, "Star Wars: The Last Jedi" will hit big screens worldwide and is likely to take in well over a billion dollars at the box office. The previous installment of the illustrious franchise, "The Force Awakens," took in $2.06 billion globally, accounting for nearly 4% of Walt Disney Co.’s (DIS, Financial) revenue in 2015. "Thor: Ragnarok," which was released Nov. 3 in the U.S., has grossed over $500 million since opening weekend.
Despite less total traffic to theaters, Disney’s revenue, net income and cash flow continue to grow as the company adds win after win to its brand recognition. People still want to watch these films. More importantly, management has navigated changes in technology and consumer behavior extremely well.
Financially speaking, Disney has never been stronger. It has bought back over 20% of its outstanding shares, drastically improved its free cash flow and is now paying out $1.56 in dividends (27% of EPS), up from 35 cents in 2008. If this performance continues, in the next decade, EPS could reach $13 or greater. Disney currently earns $9 billion a year, a more than 20% return on equity.
Earlier this month, it was revealed Disney was exploring a deal to acquire the studio assets of Twenty-First Century Fox Inc. (FOX, Financial). Negotiations are currently on hold, but both companies remain interested in a potential acquisition. Since 2005, Disney has acquired Pixar, Marvel Studios and LucasFilm for a combined $15.4 billion, which has helped it increase return on invested capital to over 14%.
No company has a wider or deeper moat than Disney. Its cable networks and branded franchises give it a dominant position in the industry. Media consumption is only going to become more pervasive with more devices and new technology giving consumers even more ways to watch and engage. Content is king and Disney is the king of content. If the world still cares about content in 100 years, Disney will be delivering the best of it.
In addition, Disney should continue to selectively open theme parks around the world. The company has about 50% of its subscriber base up for renewal by the end of 2019. Parks and resorts growth of 6% this year reflect an uptick in visitors in Shanghai and Paris, which more than offset the impact of hurricanes on its U.S. parks. Next year, capital expenditures will be $1 billion higher as Disney completes build-outs in Shanghai and Orlando as it looks to earn close to $7 a share. If the market puts the multiple back to the stock’s historic average, the price could rise to $135 or more, a 32% return.
Disclosure: I have no positions in Disney.
