Disney Shows Again Why It's a Top Dow Stock

Disney should be feeling pressure from new businesses and falling movie ticket sales, but instead it's thriving, something the rest of the Dow Jones Industrial Average could learn from.

May 8, 2014 at 3:30PM

The Dow Jones Industrial Average (DJINDICES:^DJI) is supposed to be filled with the bluest of the blue-chip stocks, giving the public a peek into how some of the best companies in the world are performing. But sometimes it seems more like we're watching dinosaurs of industry that are failing to innovate fast enough to keep up with more nimble competition.

Big Oil, Big Pharma, Big Banks, and Big Retail (think Wal-Mart) comprise eight of 30 Dow components, and in each sector earnings have struggled even as the economy has recovered. Whether it's changes in the way we shop, the energy we use, patent expirations, or government regulations these companies are more a look at giants of the past than leading businesses of the future.

But one company, Disney (NYSE:DIS), has taken its advantages in old media and adapt to become a powerhouse in the world of new media. As cable comes under pressure and fewer people go to movie theaters, Disney thrives. Its most recent quarter shows exactly why.

Dis Theme Park Image

Theme parks are a huge part of Disney's financial success.

The waterfall of earnings at Disney
For Disney, success begins at the box office, where it saw a remarkable 35% increase in revenue to $1.8 billion in the first quarter and where operating income more than quadrupled to $475 million. Thor: The Dark World was a box office success, continuing Marvel's successful run, but the animated Frozen was a huge surprise hit that seemed to stay atop the box office for months.  

Once Disney has box office success, it can push content to media networks and theme parks, which are its two biggest moneymakers. These two businesses grew operating income 15% and 19%, respectively, last quarter as ESPN continued to grow and consumers spent more money at parks.

A massive hit like Frozen can draw the attention of millions of children. Disney is then able to parlay that into consumer product sales, game sales, DVD sales, and expensive trips to its theme parks. This is essentially a waterfall of profits that starts with success in movie theaters. This business model has Disney hitting on all cylinders.

Dis Store Image

Disney stores keep the brand front and center for consumers.

How Disney plans to stay ahead
What's amazing about Disney is that it's arguably in the fastest-moving market of any Dow company. Box office success is often fleeting and the cable business that provides billions in operating income each year is under pressure from streaming content distributors.

But Disney is getting out in front of these changes. It now has its own streaming content delivery business, Disney Movies Anywhere, along with a number of streaming apps for its media networks.

Instead of being overtaken by the streaming future, Disney is taking the lead. That's how the House of Mouse has remained one of the top performers on the Dow and why it's up another 1.5% today after reporting earnings. Some of its Dow counterparts could learn a thing or two about how to adapt to change from Disney's example over the last few years.

Will this stock be your next multibagger?
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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends 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.

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