Bull/Bear Outlook Disney: Will 2018 Be the Return of the Mouse?

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With 2018 now kicked off, investors need to understand that this bull market is now nearing nine years old. Keep in mind that this is also the strongest bull market that most investors have seen in their lifetimes. Last year brought gains of 25% in the Dow Jones Industrial Average (DJIA) and almost 19.5% on the S&P 500. Investors also should not ignore that the major stock indexes outperformed every single strategist’s expectations by a wide margin in 2017.

Compared to the rest of the Dow, Walt Disney Co. (NYSE: DIS) did not have a strong 2017. Although shares only eked out a small gain for the year, it is still a powerhouse to contend with. Looking ahead to 2018, Disney may be facing some difficulties, but it stands to disrupt and continue to take market share.

24/7 Wall St. just came out with its annualized forecasting bias for the stock market in 2018. It looks like DJIA at 26,400 and at least 2,855 on the S&P 500 are now the baseline targets for this year.

It’s worth pointing out that on the heels of tax reform, Credit Suisse is now targeting 3,000 and Oppenheimer is targeting 2,900 for the S&P 500 in 2018.

Disney is currently trading with an 18.07 forward price-to-earnings (P/E) multiple, based on 2018 expected earnings. At the end of 2017, the forward valuation for the S&P 500 Index was 18.5 to 19.0 times expected earnings per share.

The Mouse House is already on track to be the top U.S. studio in terms of domestic box office sales, and likely it will have a market share, by that measure, above 22%, which will put it ahead of the other big four studios.

Disney also will buy most of the assets of Twenty-First Century Fox Inc. (NASDAQ: FOXA) this year at a price of $52 billion. Taken together once the deal closes, these two studios owned by Disney could have a market share of domestic box office as high at a third of the U.S. total.

Because this acquisition is going through, Bob Iger will be taking a victory lap in his role as CEO. Originally, he was expected to step down in 2016, but this was pushed back to 2018 and then again to 2019. However with this Fox deal, Iger now will be staying through 2021 to provide a stable hand for integrating all the assets. Maybe Disney can find a replacement for him by then.

Walt Disney has a 52-week trading range of $96.20 to $116.10 and a market cap near $169 billion. Its weighting in the Dow is about 3.1%, but the rank is roughly 29th of the S&P 500.

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