2019 has been a good year for stocks, with the major averages up more than 10% so far this year. It’s also been a good year for Disney (NYSE:DIS) stock, which is up 4% in 2019.
That may seem like a small rally relative to other stocks. It is. But, considering that DIS stock has essentially gone nowhere for several years, this small increase of Disney stock price is actually a big deal.
Indeed, there are signs that 2019 could be a breakout year for Disney. Favorable catalysts throughout 2019 will reinvigorate its growth and margins, boost investors’ sentiment towards DIS stock, and add clarity to its long-term outlook. All that will happen against the backdrop of a reasonable valuation, implying that these favorable catalysts could trigger a big increase in Disney stock price.
Of course, the biggest of those favorable catalysts is the launch of the Disney+ streaming service, which is expected to occur in late 2019. But that isn’t the only catalyst of DIS stock. There are plenty of other catalysts that will emerge before the Disney+ launch and boost the company’s other main businesses. The sum of those catalysts will keep DIS on a winning trajectory up to and beyond the Disney+ launch.
Overall, DIS stock looks like a good investment for 2019. This could be the year in which DIS breaks out of its multi-year, sideways trading range and rushes to new highs.
Multiple Favorable Catalysts Ahead
The core, bull thesis on Disney stock is that the launch of Disney+ in late 2019 will pivot its narrative from “company losing to Netflix (NASDAQ:NFLX)”, to “company competing with Netflix at a similar size.” Bulls also think that this pivot will push Disney out of the sideways-trading range in which Disney stock price has been trapped since early 2015.
This bull thesis has merit. Disney’s Media Networks business, its cash cow, has been losing traction for a long time because of cord-cutting. But Disney is pivoting into streaming to solve this problem. This pivot will be successful. Disney has a robust content portfolio, multiple, valuable media assets, and a track record of box-office domination.
So the whole “Disney+ will turn Disney stock around” bull thesis does have merit.
But that isn’t the only catalyst for Disney stock price in 2019. Instead, it is the headline catalyst in a year that is full of catalysts for DIS stock.
In movies, DIS is positioned to have one of its best years ever, thanks to two blockbuster Marvel movies, a big Star Wars movie, and a few highly anticipated classic Disney remakes. In parks, new Star Wars attractions are expected to launch at Disneyland in May and at Disney World in August.
Meanwhile, Hulu Live TV – in which Disney has a 30% stake – is growing rapidly, just passed 2 million subscribers, and is now the second-biggest live TV streaming platform in the U.S. Also, DIS is prepping a huge consumer-products launch for later this year, featuring Star Wars and Frozen toys and games, ahead of a new Star Wars movie and a new Frozen movie.
Overall, Disney stock is supported by multiple, favorable, upcoming catalysts, the most important of which is arguably the company’s biggest catalyst in recent memory. As a result, the company’s outlook implies that Disney stock will be a winner this year.
The Valuation of Disney Stock Remains Reasonable
Healthy outlooks lead to big rallies of stocks that have reasonable valuations. That is exactly what Disney stock offers.
Because of depressed sentiment caused by the company’s exposure to cord-cutting, Disney trades at just 16 times analysts’ consensus forward earnings estimate. That is the market’s average valuation. That’s a rather low multiple for a company with arguably the most valuable content assets in the world. It’s also below Disney stock’s average forward multiple of the last five years, which is 17.
Consequently, Disney stock price remains reasonable. An improving outlook and a reasonable valuation should lead to big gains for DIS stock in 2019.
The Bottom Line on DIS Stock
The bottom line on DIS stock is simple. Given multiple, positive, non-cyclical growth catalysts in 2019, this could be the year that Disney wakes up from its multi-year slumber and rushes to new highs. As a result, buying DIS stock at its current levels isn’t a bad idea.
As of this writing, Luke Lango was long DIS and NFLX.