A recent cover article in Barrons highlighted how CEO Bob Iger has kept the high growth rate going. By expanding Disney’s ability to turn studio properties into rising profits for Disney’s adjacent businesses, Iger has been able to outbid rivals for key assets, including Pixar in 2006, Marvel Entertainment in 2009, and Lucasfilm in 2012. Disney’s deep reservoir of entertainment franchises now allows it to turn out hits with almost boring regularity. So far in 2015, Disney has the top share of the U.S. box office, based on just 10 films, versus 15 for No. 2 Comcast. Disney’s Avengers: Age of Ultron looks likely to join the top-five worldwide grossing films ever. In other words, Disney can buy better stuff than its competitors because it can earn bigger profits on the stuff it buys — a virtuous circle of investment. Its abilities are amplified by its television business, easily its biggest money-maker thanks to sports powerhouse ESPN, with generous and growing cash flows to fund businesses across the $50-billion-in-revenue company.

One more reason to bet on the stock is that the dozens of analysts who follow it seem to chronically guess too low on future earnings, for which Disney gives no guidance. The company has beaten consensus earnings estimates in 15 of the last 16 quarters (and met them in the other one). The average upside surprise has been 8%. In the first two quarters of Disney’s current fiscal year, it beat by double-digit percentages. “This world’s appetite for great entertainment is bigger than it has ever been and probably bigger than Wall Street realizes,” Iger told Barron’s. As Disney has topped expectations, remaining estimates have tended to drift higher. Wall Street predicts the company will grow earnings per share by 16% this year, to $5.03, and 13% next year, to $5.67. It seems reasonable to assume it will come in near the high end of the forecast range for next year, at $6 a share. That would put the stock’s recent price at 19 times earnings. These seem offset by the potential rewards. Few companies right now have more or bigger likely winners on the horizon. This stock, in our view, has been the strongest, consistent winner over the past 40 years and has continued to adjust to the changing economic, consumer preference and technology backdrops. While we remain concerned about the overall level of stock market valuations and the potential fallout from the end of the ‘zero interest rate policy’ era, companies like Disney make us comfortable to be long-term investors in stocks.

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