Disney (DIS 2.40%) shares are on a roll these days. The media giant's stock has soared 43% since bottoming out late last year, hitting all-time highs this month. Momentum is on Disney's side after trading sideways for a few years, and the challenge here is to keep the good times coming.
There are a lot of catalysts across all of its segments that could keep the rally going. Let's go over some of the reasons why Disney should keep hitting fresh highs on the way to beating the market in the year ahead.
Image source: Disney.
It's not a small world
Let's start with Disney's largest parks, experiences, and products division, the segment that has accounted for 43% of the revenue mix through the first half of fiscal 2019 since lumping its consumer products arm with its iconic theme parks. There are a lot of new rides and attractions coming to Disney's gated attractions in the next 12 months, particularly in Florida where it will have opened both phases of its Star Wars: Galaxy's Edge expansion as well as its first Mickey Mouse-themed ride by early next year.
There have been reports of light crowds at Disney's two domestic theme park resorts this summer. The brutal heatwave in Florida along with moves to dramatically raise prices and restrict access for its cheaper passes at Disney World and Disneyland could be weighing on turnstile clicks, but it shouldn't get in the way of revenue and segment operating income growth. Disney is milking more money out of its guests, and the year ahead should continue to see steady growth on the top line for its most consistent business along with even greater growth on the bottom line despite its major investments in experience upgrades.
Disney's second-largest segment is media networks, gobbling up 38% of the revenue mix. Operating cable networks and broadcasting businesses isn't exactly in favor these days. Folks are "cutting the cord" as they kiss their chunky cable bills goodbye, something that's been naturally problematic given how much Disney spends on sports programming at ESPN and original content for ABC, Disney Channel, and its other cable networks. However, this isn't a business that is going away anytime soon. Revenue has risen 3% for the segment through the first half of fiscal 2019 on flat operating income growth. Content is still king both here and abroad for Disney, and this remains a major way for it to optimize its successful franchises thriving in other aspects of its business.
Studio entertainment is a distant third in terms of size at Disney, calling dibs on just 13% of its top-line results through the first six months of this fiscal year. This also happens to be a market that Disney is dominating right now. Disney is the studio behind the four highest-grossing movies of the year with Avengers: Endgame, Captain Marvel, Toy Story 4, and Aladdin leading the way in box office receipts. The Lion King is currently in sixth place, but it will keep rising in the coming weeks.
Disney is just getting on the theatrical front, as Star Wars: The Rise of Skywalker will join a Frozen sequel, a Mulan live-action reboot, and Pixar's first original release since 2017 in the next 12 months. Disney also recently put out an ambitious list of Marvel movies it will be cranking out in the the next few years. In short, Disney will continue to own the corner multiplex.
Putting it all together
This leaves us with Disney's fourth and final segment: direct-to-consumer and international. This is the media behemoth's smallest segment, but it will be its fastest grower once Disney+ launches in mid-November. Disney turned heads in February when it impressed consumers with the breadth and aggressive pricing of what will be its flagship streaming service. The new streaming service will be popular at $6.99 a month, and no one is in a better position than Disney to cash in on its content through its global collection of industry-leading theme parks, movie and television studios, and media networks. Disney+ may find Disney disrupting itself, but investors prefer to see that instead of someone else at the helm of the disruption.
Disney stock's valuation has risen dramatically lately. Disney's revenue and earnings can't match the better than 40% rise in the shares over the past seven months. The valuation concerns are still overblown. Closing on its acquisition of key Fox assets in March will result in Disney's first fiscal year of double-digit percentage revenue growth in 15 years. Organic growth could also follow suit once Disney+ is up and running. Disney's historical growth may not seem to justify the stock trading at 22 times this fiscal year's earnings -- particularly with some potential margin challenges as it establishes Disney+ and other growth initiatives -- but this isn't the same company that has meandered as investment in the past couple of years before stepping up over the past seven months. Disney is beating the market now, and it should continue to do so in the year ahead.
