Disney is a great buy-and-hold stock, this investor says

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You can’t keep a good stock down. That’s the call on entertainment giant Disney (Walt Disney Stock Quote, Charts, News, Analysts, Financials NYSE:DIS) which has been flat for 2021 but should be a good long-term hold, according to Bruce Murray of the Murray Wealth Group.

“Disney is classic growth stock,” said Murray, speaking on BNN Bloomberg on Monday. “The Disney brand is incredible, ESPN has pretty good control of American sports, and these are not going away.”

“On Disney, the [share] price is reasonable and although we do not own it I believe that it’s a company you can buy and hold for the long term and feel quite secure,” Murray said.

Disney was a strong performer over the back end of 2020, enough to give the stock a return of 25 per cent for the year. But the story has been different in 2021, where apart from an early run has been looking range-bound for quite some time now. Currently, DIS is exactly even, year-to-date.

At the same time, the company seems to be rolling along just fine as the economy picks up and Disney’s entertainment options — its theme parks, movie franchises, sports and streaming service — become once again the go-to option for families.

The company’s Parks, Experiences and Products segment showed strength in the latest earnings report where revenue was up 308 per cent year-over-year (no surprise there, as parks were shut down this time a year ago) to $4.3 billion for Disney’s fiscal third quarter 2021, delivered in mid-August. (All figures in US dollars.)

But both the Parks, Experiences and Products segment along with Disney Media and Entertainment Distribution still have a bit of catching up to do, with the company noting that disruptions to key live sports events and film and television production continue to impact the company’s bottom line. Complying with government regulations and safety measures along will cost the company $1 billion in fiscal 2021, Disney said.

“Theme parks and resorts resumed operations, generally at reduced capacity, at various points since May 2020 through June 2021 and we have commenced an ongoing return of cruise ship sailings and guided tours,” Disney said in an August 12 press release. 

“In addition, we have delayed, or in some cases, shortened or canceled, theatrical releases, and stage play performances were suspended beginning in March 2020 with limited stage play operations resuming in the first quarter of fiscal 2021. Theaters have been subject to capacity limitations and shifting government mandates or guidance regarding COVID-19 restrictions,” Disney said.

On Disney’s streaming service Disney+, it’s now almost two years old and has firmly encamped itself among the growing list of SVOD players like Netflix, Amazon Prime, Disney’s own Hulu and HBO Max. 

But Murray says the Disney brand and its status as a rite of passage for kids isn’t going anywhere.

“There are lots of entertainment options but Disney+ is very specialized, with the focus on children and young people’s movies, and I believe that when families are in that part of their life cycle Disney will be a must have,” Murray said. 

“All the retired people probably won’t have Disney (unless the grandkids are coming over) but I think that’s the key,” he said.

“With Netflix and the other streaming services, they’re all out there and they’re all good [but] there’s room for a lot of these names, and many, many households out there have two or three streaming services all the time, Murray said. “I know there’s some switching going on when [people] feel that they’ve exhausted the current portfolio of movies at one place, but I think Disney is going to remain among the leaders in that field for quite a long time.”

In total, Disney’s fiscal third quarter featured revenue up 45 per cent year-over-year to $17.02 billion and earnings of $0.80 per share compared to just $0.08 per share a year ago. Both the top and bottom were beats, with the analyst consensus at $16.76 billion and $0.55 per share, respectively.

On Disney’s subscription services, the quarter showed 116.0 million for Disney+ (compared to 103.6 million for the previous quarter), 14.9 million for ESPN+ and 42.8 million for Hulu. 

“We ended the third quarter in a strong position, and are pleased with the Company’s trajectory as we grow our businesses amidst the ongoing challenges of the pandemic,” said Disney CEO Bob Chapek in the quarterly press release.

“We continue to introduce exciting new experiences at our parks and resorts worldwide, along with new guest-centric services, and our direct-to-consumer business is performing very well, with a total of nearly 174 million subscriptions across Disney+, ESPN+ and Hulu at the end of the quarter, and a host of new content coming to the platforms,” he said.