Recent Weakness Good Opportunity To Pick Up Disney For Patient, Long-Term Investors

Every so often the calendar and the movie release schedule give patient long-term investors a chance to buy Disney (DIS) on some mild weakness.

That’s where we are now.

The stock pulled back slightly after the company announced first quarter earnings on May 9 of $1.61 a share. That was 4 cents better than the consensus Wall Street estimate but the shares showed some weakness earnings fell 13% year over year. The blockbuster set of movie releases in the first quarter of 2018–Black Panther and Star Wars: The Last Jedi–made the year to year comparison just awfully difficult for the first quarter of 2019.

The market also decided to worry about the costs that come with Disney’s decision to launch its own streaming service, Disney+, rather than look at the likely future returns from that investment. The Diect-to-Consumer unit that includes the streaming business showed a big jump in operating losses to $393 million from $188 million. The increased costs this quarter were from Disney’s investments in ESPN+ and costs associated with the launch of Disney+. Wall Street analysts rightly pointed out that this increase was just a preview of losses to come as Disney+ spends to compete with Netflix (NFLXWealth Strength IndexNFLX is Extremely Down and trending Down.)

But here are my reasons for building positions in Disney now.

First, with revenue for Avengers: Endgame now at $728.5 million for the U.S. domestic release after this past weekend, Disney will move to a situation where year to year movie revenues work in its favor and not against it. (There’s still a reasonable chance that Averagers: Endgame will break the non-inflation adjusted global revenue record set by Avatar.)

Second, the company’s traditional units are all looking to be in good shape moving forward. Revenue from cable networks was up 2% year over year and operating income increased $2 as well. The days when ESPN was an anchor around Disney’s neck seem to be over. Parks revenue climbed 5% and segment operating income grew 15%.

Third, as we get closer and closer to the November 12 launch of Disney+, I’d expect Wall Street analysts to begin to focus more on the future upside from the streaming service and less, relatively, on costs.

And fourth, today Disney resolved the last piece of the complex ownership puzzle at Hulu by reaching an agreement with Comcast that would leave ownership of Hulu in Disney’s hands after 2024 and that gives Disney full operating control now. The deal continues the Comcast license of NBCUniversal content to Hulu through 2024.

Disney shares closed up 1.42% today to $133.20. That’s still down from the April 26 high of $139.92.

Today, May 14, I’m adding Disney shares to my long-term 50 Best Stocks Portfolio.