Please ensure Javascript is enabled for purposes of website accessibility

Disney: The Force Hibernates

By Rick Munarriz - Jan 7, 2016 at 9:17AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The family entertainment giant has fallen 12% since the debut of the new Star Wars movie three weeks ago. Something's got to give.

Image source: Disney.  

There's a disturbance in the force. Shares of The Walt Disney Company (DIS -1.72%) have closed lower in each of the past six trading days, kicking off 2016 the same way that it closed out 2015.

The stock dipped into the double digits during intraday trading this week, and that's the first time we've seen that happen in more than three months. Perhaps more painfully, the shares have surrendered 12% of their value since Star Wars: The Force Awakens debuted three weeks ago.

This would be easy to dismiss as a "sell on the news" event, but the new sci-fi blockbuster has shattered box office records. It's hard to imagine it performing any better than it did when it topped $1 billion in gross ticket receipts in less than two weeks. 

It's also not as if the stock was hitting new highs in the days heading to the film's release. Disney stock peaked in August. It is now trading 18% lower.

Outside of the concern of ESPN shedding subscribers, it's not as if Disney's fundamentals have followed the shares lower. Star Wars: The Force Awakens is a box office smash and a critical success. Disneyland and Disney World's Magic Kingdom were filled to capacity over the holidays. 

Things aren't perfect. Ratings are trending lower at ABC. ESPN is joined by Disney's other cable properties in servicing fewer accounts as more homes cut the cord. However, even that division managed to post reasonable growth on both ends of the income statement in fiscal 2015.

Wall Street's targets haven't changed during the correction. Analysts still see revenue growing at a 7% clip with earnings per share rising by 10% in fiscal 2016.

The prospects beyond this year couldn't be brighter. The financial and well-reviewed success of Star Wars: The Force Awakens makes the next two installments no-brainer slam dunks, and there are now three spinoffs in the works. After coasting through the past couple of years with more invested in in-park technology than new rides, we are heading into an era of heavy expansion of major attractions at its iconic theme parks.

The combination of Disney's shrinking stock price and its move late last year to once again boost its dividend results in a yield that tops 1.4%. That may not send income investors scrambling to snap up the House of Mouse, but it certainly makes it that much more attractive to folks seeking out cash distributions.

These may be globally dicey times in terms of both political and economic tension, but with Disney's theme parks seemingly posting record holiday attendance and Star Wars: The Force Awakens setting up the franchise for years of milking, it's hard to see the correction lasting too much longer. There's no point in dwelling on the dark side when the present and future are so much brighter.  

Rick Munarriz owns shares of Walt Disney. The Motley Fool owns shares of and recommends 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$122.81 (-1.72%) $-2.15

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
402%
 
S&P 500 Returns
129%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.