Whether you're a parent looking for some entertainment for their child so they can have some down time, a super hero fan boy, a Star Wars fanatic, a nostalgic millennial looking to re-watch all of the Pixar films, someone who couldn't wait to venture through the now unlocked Disney (DIS) - Get Report vault, or (like me) all of the above, you've probably downloaded the Disney+ app and become a subscriber.
Needless to say, Disney's long awaited streaming service has become all the rage. It's been reported that the service is adding one million subscribers a day. As a result, I'm not surprised to see investors rushing into Disney stock. But, at a certain point, even a blue chip name like Disney with a popular streaming service can become over valued.
Analysts are coming out of the woodwork with bullish estimates regarding subscriber numbers and adoption rates. Disney+ has only been out for a couple of weeks now and Disney's stock is up more than 8% since the service launched.
Prior to the Disney+ announcement that Disney CEO, Bob Iger, made back in April, Disney shares had been stuck in a fairly well defined trading range. From Sept. 2014 to April 2019, Disney was range bound between $90 to $120 range. However, throughout 2019, Disney shares have rallied quickly, breaking out above that prior $120 resistance to the $150+ level where they trade today. It seems as if overnight, the market forgot the cord cutting concerns that has previously plagued Disney for all those years.
Wall Street is being forced to re-evaluate the company as it becomes clear that streaming will play a major role for this iconic media name moving forward. But even with all of this bullish sentiment surrounding Disney+ and its potential to propel Disney into the digital age, to me, after this run-up to the $150 threshold, though they've slipped today, Disney shares aren't the most compelling investment opportunity created by the Disney+ craze; Comcast (CMCSA) - Get Report is.
Comcast shares have been under pressure for a couple of months now, since hitting their 52-week highs of $47.27 in September. They're now down roughly 8% from prior highs.
It appears that a rotation out of media names such as Comcast, and into the hot stock, Disney, has become a trend in recent months. Since Nov. 12, when Disney+ launched, Comcast is down roughly 4%.
Since mid-September, Comcast has lagged behind the S&P 500 by more than 10%, having sat out the most recent leg on the current broad market rally.
Comcast started off the year hot, quickly rising from its 52-week lows of $32.61 set during the Christmas Eve sell-off in late 2018 to those aforementioned highs in September. Even though Comcast has underperformed the market in recent months, it's still a big winner on the year thus far, posting year-to-date gains of almost 28%.
Furthermore, when you look at the company from a fundamental standpoint, Comcast's performance begins to look even more impressive. Dating back to 2002, Comcast has posted double digit earnings per share growth in 15 out of the last 17 years. The company is on pace to post solid results again in 2019, with consensus estimates for full-year earnings per share growth currently sitting at 22%.
In 2002, Comcast's annual earnings were negative $0.08 per share. Since then, the company has totally revolutionized itself with the NBC Universal acquisition and its growth as an internet provider. Analyst estimates for 2019 earnings per share are $3.10. Wall Street is expecting another double digit growth year in 2020, with forward consensus coming in at $3.43.
This means that even after Comcast's strong year-to-date performance, shares are being priced with a 14.5x trailing-twelve-month price-to-earnings ratio and a forward looking price-to-earnings ratio of just 13x.
Both of these figures as well below the 17.75x average price-to-earnings ratio that the market has placed on Comcast during the last decade.
Right now, Comcast is being priced at a discount to the S&P 500, as well as rival Disney.
Using adjusted earnings, the S&P 500 is being priced with a 23.3x trailing twelve-month multiple. Disney shares carry an even higher premium, trading for nearly 26.5x their trailing data. And what's more, Comcast is expected to post greater bottom-line growth in 2020 than both Disney and the broader markets, meaning that its shares are even cheaper on a forward basis.
I continue to be bullish on Disney shares. Disney is my second-largest personal holding behind Apple. To me, Disney isn't a company that long-term investors should trade in and out of. It's a best-in-breed name that should be owned over the long-term. However, that doesn't mean that now is the best time to buy the stock.
That 26.5x multiple on Disney shares is the highest multiple that company has seen since 2004. So instead of rushing into Disney at a 15+ year high valuation because of the Disney+ craze, I think it might be better to consider Comcast as a cheaper alternative.
Like Disney, I consider Comcast to be a blue chip stock in the media/entertainment space. Comcast is a cash flow machine, and management hasn't been shy about returning that wealth to shareholders. This company boasts one of the most attractive dividend growth records over the last decade or so, with a 1.9% dividend yield and 10-year dividend growth rate of 22.7%.
Comcast has created significant wealth for its shareholders over the years. Simply put, this is a company worthy of long-term ownership as well. So, why pay almost twice as much for Disney?
Nicholas Ward is long CMCSA and DIS.