Among the publicly traded studios, there's Disney (DIS 0.16%), and then there's everyone else. The House of Mouse has seen its shares rise more than 30% over the past year.
Here are three reasons to expect even more gains in the years to come.
1. Disney is a franchise factory...
Hollywood is a make-or-break town. Produce hits, and the money rolls in. Produce misses, and, well, find work somewhere else. Disney produces more hits than any other studio. And not just one-offs, but franchises -- properties that keep on giving via sequels and spinoffs.
We've seen two new ones in the last year alone. Frozen started strong last November and has since gone on to earn more than $1.2 billion at the worldwide box office and over $250 million in home video sales. Marvel Studios' Guardians of the Galaxy set the August record for best opening weekend at the U.S. box office and now ranks as the year's top domestic grosser with $307 million in receipts. Worldwide, the team of Rocket, Groot, Gamora, Drax, and Star-Lord have taken in over $618 million. November brings another potential franchise in Big Hero 6:
Source: Disney Animation.
2. ...and franchises impact every area of the business
Every new Disney character also lives beyond the vehicle in which it was introduced. Take Frozen. Adding live appearances from actors playing Anna and Elsa produced huge lines at Florida's Walt Disney World resort over the summer. A ride based on the film is planned for the Norway section of Epcot Center and is due to open in early 2016. Expect a bump in sales and operating profits at the Parks & Resorts segment in response.
Meanwhile, Guardians of the Galaxy and other Marvel characters are inspiring not only new toys but also related merchandise from the likes of CafePress, building on a long history of Disney selling its characters' likenesses for commercial use. As Chief Financial Officer James Rasulo put it during an investor presentation at Goldman Sachs' Communacopia Conference earlier this month:
Marvel was very focused in the toy business, and we wanted to broaden it into all the products that we do for Disney. We wanted to lessen their dependence on toys, move more into all the other categories. All of that has happened, which is less obvious to all of you because it's not the easiest thing to track, the bits and pieces that make up our Consumer Products business, which, by the way, is absolutely blowing the doors off. Even on a reported basis, you can see that. But that business, whether you're talking about Disney stores, licensing, publishing, it is on fire, blowing the doors off in part because of the successful reorientation of the management team and in part because of Marvel.
(Source: S&P Capital IQ.)
3. Star Wars is just starting its run.
We'll finally get a taste for what Disney can do with the Star Wars universe when it debuts Star Wars Rebels on Disney XD next month. Early data suggests that fans are just excited for the new animated series as they are for next winter's Episode VII.
Could that really be true? Sure. Fans took to Star Wars: The Clone Wars, which proved so popular that it ran five seasons on Cartoon Network before an exclusive sixth and final installment made its way to Netflix (NFLX -9.09%) earlier this year.
Foolish takeaway
Businesses of superior quality rarely trade for a discount. At north of 20 times earnings, Disney is no exception. And yet the stock has earned that imprimatur. Look at Star Wars. For any other studio, Lucasfilm would be the core property rather than icing on an already deliciously profitable cake. At Disney? Luke, Leia, Obi-Wan, and R-2 D-2 are ensemble players in a cast that includes not only Mickey Mouse and Donald Duck but also Anna, Elsa, Captain America, and Iron Man.
In the end, I suppose that's the point. The House of Mouse has given way to the House of Franchises. Each passing year brings us more of them, and as far as I'm concerned, more chances for Disney stock to touch new highs.
