Disney: Why You Should Buy Shares Right Now
One of the world's most beloved companies took a hit yesterday. The Walt Disney Co. (DIS) - Get Report saw its shares plunge from more than $106 to $99.50 in after-hours trading following quarterly earnings results that missed expectations.
But it's not time to hang up the mouse ears. In fact, this share price dip presents investors with an excellent opportunity to snap up shares in one of the best companies around.
For the second quarter of 2016, Disney reported revenue of $12.97 billion on earnings of $1.36 per share. Those numbers were actually pretty good, reflecting growth of about 4%. However, perhaps Wall Street had painted too rosy a picture of the Mouse House, yielding high expectations of $13.19 billion in revenue on earnings of $1.40 per share.
The biggest factor in the lower-than-expected earnings was disappointing results from the company's largest sector, its media networks. Revenue in the sector remained flat, at around $5.8 billion, less than what analysts had expected. In addition, sales for Disney's cable outlets slipped by 2%, to $4 billion.
This hit is due mostly to a "decline in subscribers" to ESPN, the company's flagship sports cable network, although the company hasn't provided specifics. An increasing number of Americans are "cutting the cord" and canceling cable subscriptions, watching programs online instead. In addition, the company also took a $147 million charge on its decision to close its underperforming toy and video game segment, Infinity.
However, there was plenty of good news among the earnings results as well. The company's studio entertainment sector saw revenue growth of 22%, to $2.1 billion in the quarter. There's no reason those sorts of gains shouldn't continue, with blockbuster films such as Captain America: Civil War and a new entry in the Star Wars franchise debuting this fiscal year.
Indeed, Disney is still an extremely strong company. It's an entertainment empire that has survived for decades. The company has maneuvered around many changes in how people consume entertainment. In fact, CEO Bob Iger hinted at plans to reinforce ESPN and broadcast network ABC involving, most notably, Hulu, the company's streaming content joint venture with Comcast's NBC and 21st-Century Fox.
"We see a very robust marketplace and a very strong upfront ahead, both for our broadcast network for ABC, and for ESPN. We're very encouraged with what we see, but we're not going to disclose what our strategy is going in," he said on a post-earnings conference call.
Disney will weather this storm just fine. It's one of the world's best companies, and like many others that bear this label, it's a long-term play. Indeed, the company's strategies are always based around the long term, not this hot minute.
Disney is a stock you'll want to keep in your portfolio for years. It's truly a legacy stock. And with investors currently experiencing some undue panic, this presents us with a perfect opportunity.
Right now, shares in the Mouse House are priced around $101.50. But within the last 12 months, it's reached as high as $122. When -- not if -- it hits those levels again, savvy investors who jump in now will see gains of more than 20%. And in years, they could see profits of even more.
Don't get caught up in the anti-Disney hype. This is a huge company. One slightly underperforming quarter does not signal a disaster. Instead, this is a great chance to load up on shares.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.
