Shares of Disney (DIS - Free Report) climbed over 2.6% in early morning trading Thursday, the day after Comcast (CMCSA - Free Report) outbid the historic entertainment company for key 21st Century Fox (FOXA - Free Report) assets. This could lead to a bidding war, and Disney might end up missing out. Still, Disney stock seems worth considering at the moment because its fundamentals are pretty strong.
Fox Deal Overview
Comcast offered to buy a massive chunk of Fox’s entertainment and international assets for $65 billion, which the company said marked a 19% premium compared to Disney’s all-stock offer worth $52.4 billion. Disney and Comcast both plan to buy Fox's movie and TV production assets, cable networks such as FX, popular entertainment properties, two major satellite distributors—Sky in Europe and Star in India—as well as Fox’s stake in Hulu—which would give Disney a controlling stake in the streaming company.
Fox is set to vote on Disney’s offer on July 10, which means there could certainly be a lot of back-and-forth in the coming weeks. And the regulatory concerns that many cited as possibly holding up any Fox purchase seem much less relevant after a federal judge approved the AT&T (T - Free Report) and Time Warner merger on Tuesday.
Now that we have quickly gone over the Fox assets Disney plans to acquire, let’s dive into some of the company’s other fundamentals. Disney topped both top and bottom estimates in its fiscal second quarter, with its overall revenue up 9% from the year-ago period to $14.55 billion. Meanwhile, its adjusted EPS figure climbed roughly 23%.
Shares of Disney have climbed 240% over the last 10 years, which crushes the S&P 500’s 129% climb. This upward movement also tops Comcast’s 238% surge as well as Fox’s 172%. Disney stock has lagged just behind the index’s roughly 73% surge over the last five years, up nearly 68%.
Investors will see DIS has done very little over the last three years, with shares down nearly 2%. Looking a little closer, Disney stock has been on a rollercoaster ride during this stretch, but is, in fact, up nearly 11% over the last two years. The recent up and down movement seems to stem, in part, from overreactions to ESPN’s woes, which have been somewhat overblown compared to linear TV’s overall decline.
Moving on, Disney’s valuation picture should please investors. Coming into Thursday, Disney stock was trading at 14.3X forward 12-month Zacks Consensus EPS estimates. Over the last year, DIS has traded as high as 17.8X and as low as 13.4X, with a one-year median of 15.5X.
Expanding our view a little further, investors will see that Disney’s valuation appears very attractive at its current level, if not cheap, as it rests just above its three-year low and marks a major discount to the S&P 500’s 17.3X. DIS also rests well below its industry’s average of 20.2X.
With all that said, investors must also understand Disney’s growth outlook. The company’s quarterly earnings are expected to surge by over 25% to reach $1.98 per share, based on our current Zacks Consensus Estimates. Meanwhile, Disney’s full-year earnings are projected touch $7.08 per share, which would mark over a 24% expansion.
The company is also expected to see its quarterly revenues climb by 10.2% to hit $15.69 billion, while its full-year revenues are projected to pop by 8% to reach $59.56 billion. Both its quaterly and full-year growth would be rather impressive for a company of its size and age.
Disney would love to grab the Fox assets as it tries to build up its war chest at a time when owning content is paramount. But, investors shouldn’t worry too much if Disney is beat out because the company’s portfolio already includes Pixar, Marvel, Lucasfilm, and more.
These assets should help it compete against the likes of Netflix (NFLX - Free Report) and Amazon (AMZN - Free Report) when it launches its new standalone streaming service in late 2019. Coupled with ABC, ESPN, and its other cable networks, Disney will do just fine in the new entertainment age.
Disney is currently a Zacks Rank #3 (Hold) and sports “A” grades for Value and Momentum and a “B” for Growth in our Style Scores system. And let’s not forget the company is a dividend payer, with a yield of 1.6%.
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