The $4 billion purchase has reaped even bigger rewards.
It’s been about five years since Walt Disney Co. (NYSE: DIS) purchased Marvel Studios for about $4 billion. I praised the deal at the time because I saw what Marvel was up to, and that Disney could assist with the vision.
Marvel was still in the midst of developing movies around its central, and most famous, characters. I opined at the time that it wouldn’t just result in a bunch of one-off films or a few sequels. Instead, I suggested that the studio would follow the same path as the comics did. They would pair off characters, put them into groups (“The Avengers”), actors would be expendable because new actors could jump into roles just as they did with “Batman” and the James Bond franchise.
Marvel would launch live action and animated TV series. There would tons of merchandising. Disney would be able to leverage its own assets in expanding the Marvel brand. Disney owns ABC and several cable networks. Of course, it has its own massive film distribution arm. Naturally, it has a gazillion licensing and production deals for all of its merchandising.
$4 billion sounded like a bargain. I said as much. I said it would provide Disney revenue for decades to come. Marvel Studios president Kevin Feige said his plans for the Marvel cinematic universe extend to at least 2028.
Since the purchase, the films alone have generated over $1.3 billion in gross revenue. Add to that DVD/streaming revenue, TV licensing fees, and merchandising, and the deal was a slam-dunk for Disney.
So is Disney stock still worth buying?
Since the purchase was announced in 2009, Disney stock has more than tripled in price. I think it’s got a lot further to go, and Marvel is only a piece of the puzzle. Disney didn’t only buy Marvel, but in 2006 it purchased Pixar Studios, and purchased LucasFilm for $4 billion last year.
Think about all the revenue from Pixar and Star Wars properties. New Star Wars films are being planned. There’s a Star Wars animated series on Disney XD. Star Wars and Marvel characters are showing up in the weirdest places in crossover stories. Phineas and Ferb infiltrated the Star Wars universe a few weeks ago. Just last week, my kids were watching a Marvel cartoon and the characters from Disney’s live-action series “Jessie” showed up as animated characters.
The synergy potential is insane and Disney is milking it.
Disney has $6.9 billion in cash to finance all these properties. It has $12.9 billion in cheap debt to help. Free cash flow is mammoth and growing, from $3.4 billion in FY11 to $4.2 billion in FY12, to $6.7 billion in FY13. That’s right, Disney generated the same free cash flow in FY12 than it paid for Marvel in 2009.
It remains a growth stock with long term growth rates pegged at 16.3%. It trades at 20x earnings, which I think is reasonable considering the premium it deserves as a world class company in excellent financial shape.
Buy now, and may the Force-Thor-Incredibles be with you.
Lawrence Meyers owns shares of DIS.
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