DIS Walt Disney Co

By Steven Russolillo 

Three months ago, investor sentiment surrounding Walt Disney Co. was in the dumps. Not even the successful revival of "Star Wars" could shake the negative narrative. Trouble at ESPN was all investors cared about. The shares shed one-quarter of their value from November through February.

What a difference three months can make.

Disney stock has since been on a tear, rallying nearly 20% from a February bottom and far outpacing the S&P 500's rebound. Much of that is thanks to chief Robert Iger's forceful defense of ESPN.

In February, he surprised investors by saying the sports network had a small uptick in subscribers following years of declines. Even amid rising programming costs, Mr. Iger noted the idea that ESPN was cratering in the cable cord-cutting age was "just ridiculous."

That helped lift the cloud of negativity. And, as Disney reports fiscal second-quarter results Tuesday, other aspects of its business should give investors even more reasons to cheer. Analysts polled by FactSet estimate earnings for the period through March of $1.39 a share, up 13% from a year ago. Revenue is expected to have increased 6% to $13.2 billion.

One often overlooked part of Disney's results is its theme parks and resorts. As Disney's second-largest segment by revenue, this generated $16.1 billion in revenue in fiscal 2015. That was nearly one-third of the company's total and more than double that of Disney's studio segment. They produce about one-fifth of operating profit, also second-biggest after media networks.

Domestic theme parks have benefited from rising attendance and higher consumer spending. And while international parks have struggled, optimism is building ahead of next month's launch of Shanghai Disney Resort. Analysts at J.P. Morgan estimate it alone could generate roughly $1 billion in revenue by fiscal 2017 and about $50 million in operating income.

Disney's diversified portfolio of businesses has the potential to help withstand additional weakness ESPN might have in store. Furthermore, Disney's valuation looks compelling. Fetching 17 times projected earnings over the next 12 months, the stock trades at a 6% discount to its average multiple over the past three years.

This stock might have an enchanting ending after all.

(END) Dow Jones Newswires

May 09, 2016 14:39 ET (18:39 GMT)

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