In our long thesis on Disney (DIS: $104/share) in January, we wrote that there were four key catalysts that could help the stock overcome ESPN fears and break out of its rut. They were:
Last week, all four catalysts came together in a flurry of news that helped send shares up 6%. After a down year, Disney looks poised to deliver significant returns for shareholders.
Fox Acquisition Could Be a Game-Changer
Last week kicked off with the news that Disney had explored a deal to acquire the studio and other assets of 21st Century Fox (FOXA). Talks are reportedly on hold at the moment, but both companies remain interested in the potential acquisition.
It’s impossible to fully evaluate this hypothetical acquisition without knowing the details or the price point, but, in theory, this deal should be great for Disney. Most companies destroy shareholder value when they carry out large acquisitions, but Disney has bucked this trend in the past. The company’s impressive content monetization platform gives it the ability to extract more value from intellectual properties than anyone else.
Since 2005, Disney has acquired Pixar, Marvel Studios, and LucasFilm for a combined $15.4 billion (~20% of the company’s total invested capital). As Figure 1 shows, these acquisitions helped Disney increase its return on invested capital (ROIC) from 8% to 12% over that time.
Figure 1: Growth in ROIC Over the Past 15 Years
Sources: New Constructs, LLC and company filings
The Fox acquisition would give Disney several valuable pieces of intellectual property that the company could then plug into its monetization machine. Specifically, Disney would get
