Disney Stock Forecast (NYSE: DIS): Marvel Is Disney’s Infinite Gold Mine

The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First. 

Summary:

• Disney’s movie ticket sales and merchandise licensing business has a strong tailwind from its Marvel Cinematic Universe franchise. Licensing its intellectual property is a $3.2 billion/year business for Disney.
• After the massive $1.33 billion success of Black Panther, Disney’s Avengers: Infinity War is another giant blockbuster movie.
• Avengers: Infinity War posted a new record in U.S. domestic opening weekend box office revenue with $250 million in estimated ticket sales.
• Avengers: Infinity War is also a big hit in foreign markets. Its 3-day opening weekend gross is $380 million. This international gross is without China’s contribution.
• Disney’s stock has a neutral signal from I Know First. However, I rate DIS as a buy because I know hit Marvel movies also leads to increased merchandise licensing.

The marvelous record-setting weekend opening gross of Avengers: Infinity War is likely to boost Disney’s (DIS) stock above the $105 level within the next two weeks. This latest Marvel Cinematic Universe movie set a record global weekend gross of $630 million. More importantly, this record-setting feat is still without Avengers: Infinity War being released in China.

(Source: Disney)

Avengers: Infinity War set a new U.S. first week domestic gross of $250 million, beating the old record of $247 million of Disney’s Star Wars: The Force Awakens. This should convince you all that Marvel is an infinite gold mine for Disney. Aside from the movie ticket sales Avengers: Infinity War will be a huge boost to Disney’s multi-billion licensing business. Disney is the world’s top licensing company thanks in part to its popular Marvel superheroes assets.

Why Investors Should Care

In spite of the huge success of Marvel’s Black Panther movie, DIS’ YTD market performance has been moribund. Black Panther grossed $1.33 billion and yet investors are still pessimistic over Disney. The increasing adoption of cord-cutting is really weighing Disney’s Media Networks business segment. However, hit Marvel movies plus the increased merchandise licensing effect should help offset the decline of Disney’s cable TV-related channels/subsidiaries.

(Source: Yahoo Finance)

Disney’s upcoming paid streaming service has little chance of catching up with Netflix (NFLX). Making hit Marvel movies (and more licensing) is, therefore, the more viable way which Disney could address the expected decline of its cable TV-related businesses.

Judging by its strong opening weekend performance, I expect Avengers: Infinity War to hit $1 billion in global revenue within the next two weeks. Early box office success is very important because the distributor (Disney’s Buena Vista) usually gets 90% to 95% of the total ticket sales during the first two weeks of a film showing. Movie theaters will only start taking 10 to 20% share in ticket sales after the 3^rd or 4^th week of showing.

Movie theaters need hit movies to attract people. Theater owners/managers want many people to come watch movies. In this way cinema owners can sell more of their high-margin popcorn, burgers, peanuts, hotdogs, drinks, and other food/beverage products.

My point is that Disney’s movies and merchandise licensing segments rake higher operating income from hit Marvel movies. While theater owners make money from selling food and beverage to cinema goers, Disney and its partners makes big money by selling toys, food, and other consumer items using the Marvel brand.

A stronger revenue stream from its movies division and licensing segment is accretive to Disney’s bottom line. Investors should appreciate it more that Disney’s licensing business made $3.26 billion in revenue last year. From the strong theater sales of Black Panther and Avengers: Infinity War, we can safely expect Disney’s licensing revenue to hit $3.5 billion.

(Source: Statista)

The movies and licensing business segments of Disney has more upside this year. After Avengers: Infinity Wars, Marvel still has other popular franchise movies for release later this year. Ant-man and The Wasp is coming this July 6. Solo: A Star Wars Story will be released on May 25.  The Incredibles 2 has a June 15, 2018 release date. The Nutcracker and the Four Realms has a November 2, 2018 release date.

The more hit movies that Disney comes up with, the stronger its licensing business becomes.

Conclusion

I Know First has a neutral algorithmic market trend rating for Disney’s stock. However, I rate DIS as a buy because I am one of those Marvel addicts. I understand that buying a cinema ticket to watch Avengers: Infinity War usually leads to diehard fans spending more money on toys, collectibles, t-shirts, caps, phone cases, and other Avengers: Infinity Wars-licensed goods.

My buy rating for DIS is in line with the bullish 12-month price targets for it made by TipRanks-tracked Wall Street Analysts. Based on the calls of the nine best-performing TipRanks-tracked analysts, Disney’s stock has an average 12-month PT of $116.22.

Lastly, strong box office performance of Marvel/Star Wars movies helps Disney fund production of other movie franchises like The Incredibles 2.

Past I Know First Forecast Success with DIS

I Know First has made accurate predictions on DIS in the past, such as its 3 month bullish article published on October 2nd, 2016. In the article, we discussed possible consequences potentially resulting from Disney considering acquisition of Twitter to use it as a content promotion infrastructure. Since the article’s release, Disney shares have increased by 16.24% in line with the I Know First algorithm’s forecast. See chart below.

(Source: Yahoo Finance)

This bullish forecast for DIS was sent to I Know First subscribers on October 2nd, 2016.

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I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.