Disney has long been a darling on Wall Street. The upside of that is that its stock has risen 30% in the last year, pushing consistently to all-time highs. The downside, however, is that expectations have also been at an all-time high. It was only a matter of time before the company stumbled, and that’s exactly what it did. All things considered, though, this is just a small blip. Let’s discuss.
Fiscal Q3 Report
The Walt Disney Company reported its earnings for fiscal Q3 2015 on Tuesday. Expectations ran high and the stock rose from $118.25 to $121.69 during the week leading up to it. However, the results drove it down 8% to $111.73 at the time of this writing on Wednesday. Here are the highlights:
- Earnings per share came in at $1.45, beating the consensus by $0.03
- Revenue was up 5.1% year-over-year to $13.1 billion. However, the number missed analyst expectations by $130 million.
- Revenue by segments: Media networks including ESPN and ABC (+5%), Parks and resorts (+4%), Studio entertainment (+13%), Consumer products (+6%) and Interactive (-22%).
Why Investors Should Buy the Dip
Despite the miss on revenue, Disney is still in great shape. Those investors who are selling on the short-term disappointment are ignoring what Disney has yet to become, even this year. Star Wars, which will be released in December, is expected to set records in the box office. Some have talked about it easily surpassing $2 billion.
“This is a movie that’s opening in December, and if you think about it, their top two earning films of all time opened in December and this is going to join those ranks,” said Paul Dergarabedian, senior media analyst at Rentrak.
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“I think most certainly it’s going to break the all-time December opening weekend record. We’ve never had a movie in North America open with over $100 million in December and this will happen with the next Star Wars,” he added.
Talking beyond the upcoming movie, Dergarabedian said that Star Wars “will bear fruit for the next 10, 20, even 100 years. This is a 100-year plan for Disney with all these various properties. Then these properties go to the small screen, then there’s product placement, products associated with Star Wars.”
This development alone makes Disney worth the investment. CEO Bob Iger is also still bullish on ESPN, despite some modest losses in that segment. “Ninety-six percent of all sports programming is watched live,” he said on the earnings call. However, he suggested a week ago that ESPN could one day go directly to consumers, but reiterated that unbundling is still “a positive trend for us … ESPN is a must-have brand.”
Disney has something for everyone. It’s swiftly increasing its dividend yield, which is currently a modest 1.32%. It also has plenty to give shareholders something to smile about in Star Wars, Marvel and even the Frozen franchise. Wise investors should certainly take advantage of the current dip to add to their portfolios, as we are likely to see the stock more than recover over the coming months and years.