May The Force Be With Investors: Winning With Disney Ahead of StarWars 7

It has been nearly two years since Disney acquired Lucas Entertainment. Will Disney investors see a payoff from this soon?

Apr 6, 2014 at 8:00AM

Georgelucas Mickey
George Lucas poses with Mickey Mouse. Photo: Cartoonbrew

It has been nearly two years since the Walt Disney Company (NYSE:DIS) acquired Lucasfilm for $4.05 billion. The over-$4 billion price came as a substantial investment for the Star Wars franchise, considering that the six movies released so far in the Star Wars saga have grossed around $4.4 billion in total box-office revenue since the release of the first film in 1977. However, along with the rights to create and distribute Star Wars movies and content, Disney also got assets such as the sound studio Skywalker Sound and the visual-effects studio Industrial Light and Magic, or ILM.

Will Disney investors start to see the benefits of the Lucas Film acquisition soon? To some extent, we already have. Recent news about Disney's planned release of a new Star Wars series, set as sequels to the original three (which will make them movies 7, 8, and 9 in the saga), has put Disney and its upcoming releases back in the news.

For those considering investments in Disney, the excitement of the Lucas acquisition may already seem priced into Disney's current price of $80 a share. However, the stock did not post a major jump on the initial news of the acquisition. The stock is up over 90% since that time in December 2012, but most of that growth took place because investors have rewarded the company for great earnings releases, rising profits, and strong operations decisions. That makes for strong reasons for bullishness on Disney as an overall business, and strong reasons to believe that there is still plenty of room for growth when investors do start pricing in the Star Wars franchise fairly. 

Disney Since Lucas Acquisition
Disney shares are up more than 90% since Dec. 2012. Source: Yahoo!

May the force be with investors
Since the Lucas acquisition two years ago, investors and fans have been patiently waiting for details about the company's plans for the next installment of the Star Wars saga. Disney CEO Bob Iger told investors at the company's most recent shareholder meeting that Star Wars VII, set to be released in 2015, will be set 30 years after the last of the series, Star Wars VI: Return of the Jedi, which was released in 1983.

Though we are still waiting to hear more about casting, story lines, and financial details, Iger did confirm the return of the robot character R2D2 which, in my opinion, sets a good precedent so far. The official Star Wars website gave hints of "a trio of new young leads along with some very familiar faces." Filming is set to begin in London this May. The film is intended to be released on Dec. 18, 2015, directed by J.J. Abrams of the recent "Star Trek" film franchise revamp.

Ilm And Rango

ILM workng on Rango. Photo:

An added boost from ILM
The Industrial Light and Magic studio is a forerunner in the animation industry, as it made the award-winning animation Rango in 2011. While Disney already has an animation studio in-house, as well as Pixar and all of the technology it encompasses, ILM can still provide a boost to the company's revenue.

ILM does outsourced visual effects work for other studios' films, which could prove to be a viable revenue stream for Disney. If the company does decide to sell the subsidiary at a later time, the sale will be a boost to revenue as well. At the time of the acquisition, Disney's CEO Iger said that he would like to let ILM remain as-is, as it has been a decent business for Lucas Film up to this point.

ILM will likely continue to help create the visual effects for the Star Wars films. ILM's in-house position during the creation of the most recent three Star Wars movies, episodes 1, 2, and 3, helped keep the special effects consistent and kept costs in control. The same team will be at least partially responsible for the special effects for Star Wars VII under Disney's management and this should help assure that the new addition next year is just as spectacular as its predecessors.

2015 to be a winning year for moviegoers
Other companies also hope to get some box-office-busting hits in 2015. Comcast's Universal Pictures (NASDAQ:CMCSA) and LionsGate (NYSE:LGF) will both try to continue winning with sci-fi sagas that have been profitable for them in the past, with Universal's Jurassic Park 4: Jurassic World and LionGate's Hunger Games Part II: Mockingjay both coming out in 2015. Movies in these series' have been very profitable in the past, and the studios hope that audiences will continue this by going to see their sequels.

Dreamworks (NASDAQ:DWA) is also hoping to have a winning year with partial help from Kung Fu Panda 3, which is the first major film the company will create in conjunction with its new Shanghai-based joint venture, Oriental Dreamworks. However, Disney seems to have the highest number of exciting movies coming in 2015, including Avengers: Age of Ultron in January, Cinderella in March, and others. In conjunction with Star Wars in December 2015, this is a good reason to bet that Disney will have an industry-leading, profitable year in 2015.

Foolish investing takeaway: Continuing to bet on Disney
Aside from its Lucas Films acquisition and the upcoming Star Wars release, there are many reasons that investors should be bullish on Disney. With its continued operational excellence, as it posted earnings growth of over 7% in 2013, investors should feel confident with Disney . Though the stock has risen over 90% since the Lucas acquisition in 2012, I do not believe that the profits and publicity which will likely come from Star Wars VII have been priced-in, which makes Disney an even better bet in 2015.

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Bradley Seth McNew owns shares of Walt Disney. The Motley Fool recommends DreamWorks Animation and Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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