Disney (DIS - Free Report) upped the ante to $70 billion in cash and stock for key 21st Century Fox (FOXA - Free Report) assets, one week after Comcast (CMCSA - Free Report) outbid the company’s initial offer. Shares of Disney jumped over 1% on Wednesday following the news, which means now is a good time to see if Disney stock is worth buying at the moment.
It is no secret why Disney wants this Fox deal. The entrainment power is in search of more content as it fights to remain highly competitive in the new streaming world driven by Amazon (AMZN - Free Report) and Netflix (NFLX - Free Report) . Disney hopes to acquire Twentieth Century Fox’s film and TV studios; cable networks such as FX and regional sports channels; Sky in Europe and Star in India; and Fox’s one-third stake in the streaming service Hulu—which would give Disney a controlling stake in the streaming company.
Disney investors likely don’t want to see this bidding war climb any higher. And there is no guarantee a deal gets done with legal hurdles looming ahead, even though some of the initial regulatory concerns seem much less relevant after a federal judge approved the AT&T (T - Free Report) and Time Warner deal.
Still, even if this deal doesn’t go through, Disney stock looks pretty strong at the moment.
Disney’s portfolio already includes Pixar, Marvel, Lucasfilm, and its own studio, which should help it compete against the likes of Netflix 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 because live sports aren’t dying anytime soon—they are just changing.
Meanwhile, unlike Netflix, Disney still makes box office hits and has the titles and brand names to roll out surefire money makers for years to come. This includes making a slew of live-action versions of many of Disney’s cartoon hits over the next decade. Furthermore, the company’s Parks and Resorts business continues to grow, with revenues up 13% last quarter to $4.88 billion.
Investors should also note that Disney’s overall quarterly revenues climbed by 9% to $14.55 billion, while its free cash flow soared 48% to $3.46 billion. Therefore, Disney has the money to adapt to the new entertainment climate by spending on content, which, as HBO fans will know, is all that really matters (side note: Netflix’s total full-year fiscal 2018 revenues are projected to hit $16.13 billion, based on our current Zacks Consensus Estimates).
Recent Performance/ Valuation
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%. However, the last few years have been less kind to Disney stock. Shares of DIS have sunk 5.5% over the past three years, and were down marginally since the start of the year, before today’s climb.
Yet, Disney’s recent downturn has made its stock look like a steal. Coming into Wednesday, Disney stock was trading at 14.3X forward 12-month Zacks Consensus EPS estimates, which marks a discount compared to the S&P 500’s 17.2X.
Over the last year, DIS has traded as high as 17.8X and as low as 13.4X, with a one-year median of 15.4X. Furthermore, investors will see that Disney stock is currently trading almost in line with its five-year low. Therefore, it is hardly a stretch to say that Disney stock looks rather cheap at the moment.
But a stock is only good if the company is expected to grow, which Disney looks poised to do. Our current Zacks Consensus Estimates are calling for the company’s quarterly earnings to surge by over 29% to reach $2.04 per share—up $0.04 over the last 30 days. Meanwhile, Disney’s full-year earnings are projected touch $7.12 per share—up $0.19 over the last 60 days—representing a nearly 25% expansion.
The company is also expected to see its quarterly revenues climb by 11.03% to hit $15.81billion, while its full-year revenues are projected to pop by 8.17% to reach $59.64 billion. Both of which mark small increases over the last couple of weeks and would be rather impressive for a company of its size and age
Disney is also currently a Zacks Rank #2 (Buy) and sports “A” grades for Value and Momentum and a “B” for Growth in our Style Scores system. Disney has also earned seven full-year upward earnings estimate revisions, against zero downgrades, all within the last 60 days. And let’s not forget the company is a dividend payer, with a yield of 1.6%.
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