The 4 Biggest Catalysts for The Walt Disney Co. in 2019




 

2018 was a lackluster year for Disney's (NYSE: DIS) stock, which rose just 2% after four quarters of uneven growth across its segments. Its theme parks and movie business generated consistent returns, but cord-cutters repeatedly dented its media networks unit. However, 2019 could be a much brighter year for the House of Mouse as four main catalysts bolster its core businesses.

1. Closing its acquisition of Fox's media assets

Disney will likely close its $71.3 billion takeover of most of Fox's (NASDAQ: FOX) (NASDAQ: FOXA) media assets in late January. Disney is selling some regional sports networks and European cable channels to appease antitrust regulators, but it will retain most of Fox's non-news cable networks, the film rights to Marvel's X-Men, Deadpool, and The Fantastic Four, and the distribution rights to Star Wars IV: A New Hope.

Image source: Fox.

Those moves will significantly expand Disney's massive media portfolio and nearly cement its control of Marvel and Lucasfilm franchises. It will also acquire Fox's 30% stake in Hulu, which will boost its stake in the streaming network to 60%.

Disney expects the deal, excluding the impact of purchase accounting, to be accretive to its EPS in the second fiscal year after it closes -- and to generate "at least" $2 billion in cost synergies by 2021. But more importantly, acquiring Fox will significantly boost Disney's Studio Entertainment and Media revenues, and reduce the weight of struggling networks like ESPN on its top and bottom lines.

2. The launch of Disney+

Disney's expanded portfolio of media assets will support the launch of its Netflix (NASDAQ: NFLX) competitor, Disney+, in late 2019. The arrival of Disney+ means that Netflix will lose access to Disney's new theatrical releases. It's also led to the abrupt cancellations of its popular Marvel shows.

Disney+ is arriving late to the streaming video party, but it could pull a lot of users away from Netflix with its Disney, Pixar, Marvel, and Star Wars content. Disney is producing new original Marvel and Star Wars shows for the platform, and there's a chance that Netflix's cancelled Marvel shows could eventually return on Disney+.

Disney hasn't announced the subscription price for Disney+ yet, but CEO Bob Iger told Variety that it will likely cost less than Netflix. A successful launch of Disney+ could complement the growth of ESPN+, the $4.99-per-month sports streaming platform it launched last year.

3. A blockbuster theatrical slate

Disney's movies generated over $3 billion in box office revenues last year as hit films like Black Panther, Avengers: Infinity War, and The Incredibles 2 made it the world's top movie studio. Fox, which ranked fifth in box office revenue, raked in over $1.2 billion.

Image source: Getty Images.

The combination of Disney and Fox's studio divisions should significantly widen the company's lead over AT&T's Time Warner, which ranked a distant second last year with $1.8 billion in box office revenue.

Disney's box office revenue in 2019 could easily exceed last year's haul as eagerly anticipated films like Captain Marvel, Avengers: Endgame, Toy Story 4, The Lion King, Frozen 2, and Star Wars: Episode IX hit the theaters. Gaining Fox's upcoming films -- which include the Marvel movies Dark Phoenix and New Mutants -- would be icing on the cake.

4. Star Wars: Galaxy's Edge and higher ticket prices

Disney plans to open Galaxy's Edge, the eagerly anticipated Star Wars expansion to its theme parks, this summer. In a recent interview with Barron's, Iger stated that the Anaheim expansion will open in June, and the Orlando expansion should open "later in the year."

That's why it wasn't surprising when Disney recently hiked its California theme park prices across the board, with the price of some tickets rising by as much as 25%. The new Star Wars attractions and price hikes should significantly boost Disney's Parks and Resorts revenue, which rose 10% annually last year and accounted for over a third of its top line.

Are analysts' expectations too low?

Wall Street analysts currently expects Disney's revenue and earnings to rise just 2% and 1%, respectively, this year. However, that average forecast doesn't seem to include its imminent takeover of Fox's media assets. Therefore, that takeover -- along with these other catalysts -- could help Disney crush analysts' expectations this year.

Leo Sun owns shares of AT&T and Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool has a disclosure policy.

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