The Empire Strikes … a Deal With Disney

Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

While it is estimated that the financial impact will not be fully felt until 2015, Walt Disney’s (NYSE: DIS) acquisition of LucasFilm is the latest in a long series of major additions to the entertainment giant’s collection. Not surprisingly, Star Wars is at the center of the deal that will place some of the most famous characters from television and movies under the same roof. Disney has been gathering momentum with various recent releases and expects the move to add to its overall standing looking into the future. From an investment perspective, Disney has been a stable performer, and this acquisition improves the long-term outlook, making the stock a buy.

The Imperial Alliance

The sale that will turn over the day-to-day operation of LucasFilm to Mickey and allow George Lucas to pursue more personal ambitions is valued at $4 billion: $2 billion in cash and $2 billion in Disney stock. To put these figures into perspective, since the original release of Star Wars, the films have grossed $4.4 billion; consumer products based on the films are responsible for several billion more. The announcement was coupled with news that the new union plans to release three more Star Wars movies, with the first scheduled for 2015.

As things currently stand, LucasFilm is generating $215 million from consumer products, but Disney expects that number to grow significantly. Disney is known for its ability to merchandise and drive sales of movie-related consumer products. With Darth Vader and Luke Skywalker joining the family, it should be interesting to see how Star Wars products will be integrated into Disney’s retail empire.

A Tradition of Inclusion

Much as the Imperial Senate – the principle governing body of the Star Wars universe, for non-fans – excelled at cobbling together diverse peoples, Disney has a rich tradition of integrating successful targets. Most recently this has included its acquisition of both Pixar and Marvel, both of which have been huge performers for the Mouse House. The recent release of Marvel’s The Avengers enjoyed the largest opening weekend ever in North America, was the fastest release to gross $1 billion dollars, and has grossed over $1.5 billion thus far. Disney has shown its knack for picking winners, and this deal should be no exception.

Disney Magic

Adding to the positives for Disney shareholders is the fact that after an extended hiatus, Disney-branded films seem to have re-emerged and gathered momentum. Last year’s release of the Rapunzel revamp Tangled was one of the year’s most popular Halloween costumes – there is a very direct correlation between Halloween and success. As the company prepares for the pending release of Wreck It Ralph, Disney expects another big success.

A Fully Operation Content Station

During a period where major service providers, from Comcast (NASDAQ: CMCSA) to Amazon (NASDAQ: AMZN), to are scrambling for content, it is a great time to be a content provider. In the dash to attract eyeballs to their respective distribution formats, Comcast acquired NBC, and Amazon has struggled to expand Amazon Prime. Each of these companies is aware of the rapidly shifting preference of consumers to smaller and smaller screens. Within this context, content is critical; Disney’s ability to continue to drive numbers on the big screen, which trickle down to even larger small screen numbers later on, is a critical skill.

Trading the Peers

While many major fundamental metrics are very similar between Disney and its two biggest competitors, News Corp (NASDAQ: NWS) and Time Warner (NYSE: TWX), it is the consistency of Disney that should attract you to this stock. Considering the 5-year performance chart of the three companies below, it is easy to see the plodding march higher that Disney has delivered. Based on solid performance and another strong acquisition, Disney is a buy for your core portfolio.

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DIS data by YCharts

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