The Walt Disney company (NYSE:DIS) is one of the most recognized brands in the world. Its brands portfolio is second to none and their strategy to make each brand into an ‘event’ pays off for its investors. Their brands extend from the movie screens into TV shows, books, comics, toys and clothes, theme-park-rides, sequels, prequels, reboots and overall Disney manages to maximize the profit from each brand.
Disney revenues (more than $15.1 Billion in 2014) is derived from the following segments:
- Media networks – $21.2 B
- Parks and resorts – $15.1 B
- Studio entertainments – $7.3 B
- Consumer products – $4 B
- Interactive – $1.3 B
Last week Disney fell with the markets over worries caused by China’s economy. But even before that the company fell over the recent ‘Cord cutting’ trend that hurts Disney’s biggest segment and some of their most profitable brands: ESPN & ABC. However, these worries are unjust as Disney owns most of the content the ‘cord cutters’ are turning to, for example: Marvel studios, Pixar and Lucas films (Star Wars).
Looking at Disney revenue and EPS growth we can see that the company is still performing very well:
The growth in EPS has supported the growth in dividends paid to investors (187% increase since 2010) and also a buyback program that shrinked the number of available shares about 10% over the last couple of years.
To summarize: Disney is a stable company that will continue to be profitable. Even taking into account the cable cutting trend (that will hurt the company) the brand portfolio will continue to draw customers to the company generate profits.
Looking at Disney (DIS) price chart, we can see that it was in a strong bullish trend since the beginning of the year, but after the last earning release the company started to fall. The momentum increased due to the recent markets crush.
The recent price crush is a blessing, allowing investors to enter a position in a stable company in a cheaper price. Conservative investors can open a position in DIS using options to increase their probability of profit.
Selling Put strike 90 on DIS for September:
We look into selling a put option on Disney for 18th of Sep. We would sell 1 option for every 100 shares we wish to hold:
- If DIS stays above $90 till Sep-18 then we will earn the entire premium collected (represents more than 15% annualized return)
- If DIS will be lower than $90 we will buy 100 shares of DIS at $90 a share – a very reasonable price for the current company and its strength.
- Even if Disney will continue to move 10% lower from current price – the trade will still be profitable.
- The trade has over 80% probability to be profitable, and yield 17.5% annualized return.
Disney has a strong brand portfolio that will be able to continue and generate profits, even if the ‘cable cutting’ trend will grow stronger. The recent decrease in share prices is a blessing and allows investors to invest in the company and take advantage of the cheaper prices.
Selling puts on DIS allows investors to increase their chance of profitability and invest in thec company in even cheaper prices.