Disney Stock: The No. 1 Reason to Be Bullish on Walt Disney Co

Disney StockThis Could Be Huge for Disney Stock

Walt Disney Co (NYSE:DIS) stock was the star of the Dow Jones Industrial Average on Monday, April 18. Surging 3.09% by around 3:00 p.m., Disney stock is the top gainer among all DJIA components. The climb also sent the stock to its three-month high.

The reason behind Disney stock’s rise was simple. In fact, if you went to the movies this weekend, you may already know the answer. The company’s new movie—The Jungle Book—turned out to be a huge hit.

Released last Friday, The Jungle Book hit the big screen with high expectations. Analysts were expecting around $80.0 million in domestic box office revenue in the opening weekend. That number would make it one of the five biggest openings of all time for the month of April. (Source: “‘The Jungle Book’ to Roar to the Top of the Weekend Box Office,” MarketWatch, April 15, 2016.)

What’s really impressive is that the movie managed to beat the already high expectations. Taking in $103.6 million in the domestic box office over the weekend, The Jungle Book absolutely smashed expectations. (Source: “The Jungle Book,” Box Office Mojo, last accessed April 18, 2016.)

The Jungle Book will be the talk of the town for the next couple of weeks,” wrote Mick Hickey, analyst at Benchmark Electronics, Inc. “It’s an opening number that exceeds all expectations despite the pre-release buzz.” (Source: “Disney’s Stock Jumps to 3-Month High After ‘The Jungle Book’ Smashes Expectations,” MarketWatch, April 18, 2016.)

The Jungle Book is not the only cash machine for Disney this year. Last month, the company released its 3D animated comedy-adventure film Zootopia. In the U.S., box office revenue for Zootopia has reached $307.5 million. Internationally, the movie brought in an astounding $567.3 million. Surpassing $880.0 million in worldwide box office, Zootopia is the top grossing release of 2016 to date. (Source: “Zootopia,” Box Office Mojo, last accessed April 18, 2016.)

And I haven’t even mentioned Star Wars yet. The latest installment, Star Wars Episode VII: The Force Awakens, has surpassed the $760.5 million lifetime grossing of Avatar to become the highest domestic grossing film of all time. The most impressive part is that the movie broke that record in just 20 days of release. (Source: “Star Wars: The Force Awakens Becomes Highest Grossing Domestic Film of All-Time,” Walt Disney Co, January 6, 2016.)

No doubt, Disney’s moviemaking business is firing on all cylinders. The best part is that the company still has quite a few future box office hits in the works. In May, Disney will release Captain America: Civil War. In June, we will see Finding Dory—a sequel to Finding Nemo.

And there’s more. Since reception has been so great for the last Star Wars movie, Disney is going to release another one this year. The new movie, titled Rogue One: A Star Wars Story, is scheduled to hit theatres on December 16, 2016.

Note that the box office is not the only channel for Disney to make money on these blockbuster films. The huge fan base of Disney’s movies also brings monetization opportunities in the merchandise department. In the most recent quarter, operating income from the company’s Consumer Products and Interactive Media segments surged 23% year-over-year. Disney said that the rise in operating income was mostly due to growth in its Merchandise Licensing business. (Source: “The Walt Disney Company Reports Record Quarterly Earnings for the First Quarter of Fiscal 2016,” Walt Disney Co, February 9, 2016.)

The Bottom Line on Disney Stock

Of course, for a great company to also be a great investment, it needs to command a reasonable price. Trading at $101.63 per share, Disney stock has a forward price-to-earnings multiple of 16.28X, a quite reasonable number given its opportunities down the road. Investors who want a piece of action in the entertainment industry might want to get onboard before DIS stock’s next rally.