Disney’s stock is trading at record highs following the apparent success of Iron Man 3, the latest in their line of superhero films produced in the wake of their $4 billion acquisition of Marvel Entertainment. Prior to the success of films such as Iron Man and The Avengers, there had been concern that Disney had overpaid. These concerns have seemingly been all but addressed. The film’s ability to maintain high attendance remains to be seen, though prior films in the series have done exceptionally well.
From a broader perspective, Disney has, through action films and the continued success of ESPN, addressed a longstanding demographic problem that had plagued their stock value since the mid 1990’s. Described as Disney’s “Boy Problem”, the success of tween idols such as Miley Cyrus and the like produced a certain feminine image that made their output undesirable to male consumers. Analysts point to Iron Man as the final nail in the coffin of the skewed Disney output of the past.
The profits from Iron Man will not, however, be included in the earnings to be announced this afternoon. A number of analysts seem hesitant to throw their full weight behind Disney in the short term, and show concern that the outlook for Q2 earnings may be tempered by excitement about this film’s success, and that the bar may be set too high. Disney is also not without its potential pitfalls. Analysts will be looking closely at ad revenue from ESPN and will closely scrutinize the behavior of Hulu, which is partially owned by Disney, to determine whether or not it can remain competitive. Disney appears to be a good long-term bet, but one wonders whether some of the bull sentiment that has emerged in the past several weeks may be jumping the gun.
Brady Randall
Bradyr@keeneonthemarket.com