It's The Best Time In 5 Years To Buy Disney Shares

Michael Vodicka's picture

Monday, April 3, 2017 - 11:30am

by Michael Vodicka

2016 was a record year at the box office, with sales hitting $11.2 billion. This success is expected to continue this year, with sales projected to eclipse $12 billion.

Hollywood is pretty much booming. Today, I want to reveal the best way to profit.

This global media giant owns the industry's best portfolio of media companies and brands. I expect it to achieve record revenue in 2017. Even better, shares are trading at one of the biggest discount to sales in the last five years.

The Walt Disney Corporation (NYSE: DIS) should be a familiar name. Disney is the second-largest media company in the world by revenue, behind only Comcast (Nasdaq: CMCSA).

Disney owns one of the most valuable portfolios of companies in the entire global media industry. Its valuable properties include Walt Disney Studios, Pixar Animation Studios, ESPN, ABC, the Disney Channel, Lucasfilms, and the Star Wars franchise.

Beyond its media properties, Disney operates Disney Theme Parks, a collection of 14 theme parks with locations around the world. The company also owns the merchandising rights for its collection of brands under its consumer brands division, another huge source of revenue.

Despite its industry-leading portfolio of media companies, Disney shares fell into a bear market in 2016, crashing more than 25% from their all-time high above $120 in August of 2015.

Those losses were driven by worries over one Disney holding: ESPN. ESPN had long been a source of big profit growth for Disney. However, with millions of cable subscribers "cutting the cord" in the last few years, investors became nervous ESPN would be a drag on Disney's profit growth.

Today, I am going to explain why those concerns are misguided - and how it has created one of the best times to invest in Disney in the last five years.

I Expect Disney To Deliver Record Revenue In 2017
In the short run, I see some major profit triggers for 2017.

For one, Disney is killing it at the box office. The latest Star Wars release, Rogue One, is a huge winner for Disney with global sales topping $1 billion and climbing. The next Star Wars movie, The Last Jedi, is set to hit theatres in December of 2017. No doubt this movie will also break $1 billion in sales.

Disney also has a mega-hit on its hands with Beauty and the Beast. This movie is delivering huge numbers. Global box office sales just hit $700 million, the fastest movie ever to hit that number. At this pace, Beauty and the Beast has a legitimate shot at breaking the $1 billion mark.

Together, these mega-hits have Disney on pace for a record year at the box office of more than $7.5 billion in sales. They also trigger billions more in revenue from merchandising.

As you can see, despite weakness at ESPN, Disney is hardly limping right now. After a slight drop in the second half of 2016, I expect Disney to deliver record revenue in 2017. Take a look below. You'll see Disney's revenue growth has remained impressive despite weakness at ESPN.

Disney shares

Disney Has Two Key Traits Of A Forever Stock
Disney also looks like a great "forever stock" -- a stock that you can buy, hold for the long haul and rely on for consistent gains and dividends year after year. It has two important traits of a forever stock -- high barriers to entry and a reliable and growing dividend.

Disney is protected by huge barriers to entry that deter upstart competition. It would be virtually impossible for a startup to create a new brand with the kind of global recognition Disney enjoys.

That's the biggest reason Disney is on the cusp of hitting its 100-year anniversary in 2019. Considering the millions of companies that have come and gone in that time, there is no greater testament to Disney's staying power than its age.

In addition to high barriers to entry, Disney shares have a long history of paying a reliable dividend. Disney has been paying a dividend since the late 1980s. Today, Disney's current yield of 1.38% is 35% less than S&P 500's 2.0% average.

However, I am expecting that yield to grow. Disney has been using its record revenue to majorly ramp it dividend. In the last five years Disney's dividend has increased 148%. Take a look below.

Disney shares

And with that promising outlook, this is one of the best times in the last five years to invest in Disney.

In late 2016 Disney was trading at a massive discount to sales - which you can see in the chart below. Although Disney has rallied and closed the gap since then, shares are still trading at their biggest discount to sales at any other time in the last five years. Take a look below.

Disney shares

Risks To Consider: The numbers coming out of ESPN remain weak. Disney's other divisions are making up for lost revenue and income for the time being, but Disney needs to stabilize its ESPN business or investors could get nervous again.

Action To Take: I see a short-term boost for Disney shares and promising long-term outlook.  Buy shares anywhere below the all-time high of $120, then hold for the long haul.

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Michael Vodicka does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.