Disney Stock Will Continue to Beat the Market

Disney (NYSE: DIS  ) stock jumped 1.8% yesterday, continuing a long winning streak for the House of Mouse. Over the past year, the stock has tripled the return of the Dow Jones Industrial Average and the S&P 500, jumping nearly 50%.

DIS Total Return Price Chart

DIS Total Return Price data by YCharts.

The latest move was driven by a wildly successful opening weekend for Iron Man 3 in international markets. The film brought in $195.3 million in box office even before opening in the U.S. It looks like Disney has another billion-dollar winner on its hands, assisted by large-format IMAX (NYSE: IMAX  ) theaters. So far, premium tickets at IMAX have generated $7.1 million in box office and are on pace to outperform The Avengers, the biggest hit of 2012 for both companies.  

So much more than the box office
Box office hits like Iron Man 3 are the first step in three phases of Disney's business model. What most people don't realize is that the Studio Entertainment division is actually the third-largest business at Disney, generating just 13.6% of revenue in the first quarter of this year. Media Networks (45%) and Parks and Resorts (29.9%) are both significantly larger and are the next two phases of Disney's strategy.  

If you've ever been to Disney's theme parks, you know that they're filled with Disney's characters, both new and old. Mickey Mouse, Snow White, and Pluto are just a few of the characters walking around the park mingling with guests. Now that Marvel and Lucasfilm have come under the Disney umbrella, they've added dozens of new sources for the next generation of characters and ride themes at the company's growing number of parks.

These films and characters also play a role in the programming on Disney's media networks as well, particularly on cable. Disney can create long-running revenue streams through big box office hits and continuing revenue through resorts and media networks. 

Why Disney stock can outperform
Box office hits by themselves aren't what make Disney's stock outperform the market, but they're the foundation for the rest of the business to build on. It's this that makes me think the stock will outperform long-term, particularly with a slate of Star Wars films upcoming. 

The only challenge is that Disney's stock isn't cheap by most measures. It trades at 20 times trailing earnings and only pays a modest 1.2% dividend yield. But what Disney doesn't provide in value it provides in a competitive moat, with one of the strongest brands in the media world and a management team that knows how to generate profit from its assets. It's this strong brand that creates the ability to charge a premium to customers and return profits to shareholders. Disney has a long history of doing both, and the latest success in the Iron Man series will continue to pay dividends for years to come.

If any stock on the market is worth paying a premium for, it's Disney, and I think we're entering a golden age of Disney blockbusters that will drive the next decade of outperformance on the market.

A deep dive into Disney
It's easy to forget that Walt Disney is more than just the House of Mouse. True, Disney amusement parks around the world hosted more than 121 million guests in 2011. But from its vast catalog of characters to its monster collection of media networks, much of Disney's allure for investors lies in its diversity, and The Motley Fool's premium research report lays out the case for investing in Disney today. This report includes the key items investors must watch as well as the opportunities and threats the company faces going forward. So don't miss out -- simply click here now to claim your copy today.


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