Walt Disney Co (NYSE:DIS) stock did not have a good start in 2016. Although its latest Star Wars movie broke all kinds of records, Disney stock returned a disappointing -7.3% year-to-date. But that doesn’t mean you should give up on the company, particularly when a surge in Disney stock might be around the corner.
A Huge Catalyst for Disney Stock?
Before we go into the good stuff, let’s not forget that Disney stock’s underperformance in recent months was not a reflection of its fundamentals. In fact, the company is doing better than ever.
In its most recent fiscal quarter, Disney generated record earnings of $2.9 billion, a 31.8% increase year-over-year. Adjusted earnings per share (EPS) came in at $1.63, easily beating Wall Street’s expectation of $1.45. Note that in the past four fiscal quarters, Disney has beaten analysts’ EPS estimates every single time. (Source: “The Walt Disney Company Reports Record Quarterly Earnings for the First Quarter of Fiscal 2016,” Walt Disney Co, February 9, 2016.)
The latest Star Wars installment, Star Wars Episode VII: The Force Awakens, hasn’t been a propeller for Disney stock, though the movie was a powerful moneymaking machine for the company. In just 20 days after being released, the movie crossed the $800.0-million mark domestically, surpassing the $760.5 million lifetime gross of Avatar. (Source: “Star Wars: The Force Awakens Becomes Highest Grossing Domestic Film of All-Time,” Walt Disney Co, January 6, 2016.)
Mind you, Disney won’t just be making money from the box office. The Star Wars franchise also has a solid track record when it comes to toys and merchandise. Moreover, on-demand video streaming of Star Wars movies could also be lucrative for Disney. A renowned finance professor estimated that the Star Wars franchise is worth approximately $10.0 billion to Disney. (Source: “Intergalactic Finance: Valuing the Star Wars Franchise,” Aswath Damodaran Blog, December 28, 2015.)
How much did Disney pay for the franchise? Well, the company got hold of the Star Wars franchise by acquiring Lucasfilm Ltd. LLC for $4.0 billion in 2012. What a bargain!
The best part is that Disney has built another cash machine and it’s about to start working.
I’m talking about the Shanghai Disney Resort, which would be the first Disney theme park in Mainland China.
The resort is going to be absolutely enormous. It will include a world-class theme park with six themed lands, two themed hotels, and a shopping, dining, and entertainment district. In total, the resort will cover 963 acres, which is about three times the size of the Hong Kong Disneyland Park.
Note that theme parks have been an important revenue source for the company. In Disney’s previous fiscal year, parks and resorts generated $16.1 billion in revenue. This makes the segment Disney’s second-largest revenue source, falling only behind media networks. (Source: “The Walt Disney Company Reports Fourth Quarter and Full Year Earnings for Fiscal 2015,” Walt Disney Co, November 5, 2015.)
The company has set the opening date of the Shanghai Disney Resort to be June 16, 2016. There are already indications that the park will become a huge hit once it opens.
Tickets for the park’s opening day went on sale on Disney’s official ticketing web site at midnight on Monday. In just a few hours, opening day tickets were sold out. (Source: “Shanghai Disneyland Opening Day Tickets Sold Out Online in Hours,” Bloomberg, March 28, 2016.)
Other than the popularity of the Disney brand in China, the resort should also benefit from its strategic location. To give you an idea how great the location is, consider this statistic: there are 330 million people who live within a 3.5-hour train or car ride to the park. That’s more than the entire population of the United States!
The Bottom Line on Disney Stock
There you have it—Disney runs a great business. Many of its segments could become huge in the near future. And so far, a lot of the company’s potential is yet to be reflected in Disney’s stock price. You’ll want to keep an eye on DIS stock.