The Lone Ranger is a Massive Flop – Then Why is Disney’s Stock Rising?

Jacob Harper |

The latest Disney (DIS) megapic The Lone Ranger is poised to be an unmitigated disaster for the company. Analyst Barton Crockett from Lazarus Capital claims that when the dust settles, the Johnny Depp western could end up being a $190 million write-off.

Disney is no stranger to big bombs. In 2011 the company released Mars Needs Moms, which is currently the biggest flop (unadjusted for inflation) ever, with a $138 million loss. Lone Ranger could still "beat" that total to take the dubious title of “biggest loser in history.”

Lone Ranger could be such a catastrophe that the $116.54 billion market cap company would lose 3 cents a share on the film’s underperformance alone. But Disney isn't rattled. Despite the abysmal performance of one of its most expensive films ever, Disney stock is up 1.39 percent. What's the explaination for the seeming contradiction?

Though Disney’s present is rough, and a $190 million write-off (or $100 million, if you believe more conservative analyst estimates) is a tough pill for any company to swallow, the future of the entertainment company looks bright. Very, very bright. Disney still owns 80 percent of the successful cable channel ESPN, and maintains a giant merchandising and licensing empire that contributes heavily to its $42 billion a year in revenue, with licensing alone accounting for some $28.6 billion of that. So while you probably won’t be seeing any Lone Ranger and Tonto dolls lighting up the Christmas season this year, the Buzz Lightyears and Mickey Mouses in their stable remain proven, consistent money-makers.

On the filmic front, the pipeline of movies slated to come out looks incredibly promising on account of several franchises Disney has acquired over the years. Disney bought Lucasfilm for $4 billion in October 2012. The price tag looks like an absolute bargain when you consider the historical performance of the Lucasfilm’s Star Wars franchise, with an estimated total revenue of $27 billion in its history spread out over toys, books, video games – and of course, movies.

Disney looks to capitalize with their own new entries into the canon. Star Wars VII is tentatively set for a 2015 release, and episodes XIII and IX already have the greenlight.

Lucasfilms is the third major Disney acquisition in the last decade. Comic book company Marvel Entertainment, acquired in 2009 for $4.24 billion, has enjoyed two straight billion-plus features in The Avengers and Iron Man 3. And Pixar, acquired by Disney in 2006, has never lost money on a film. New Pixar film The Good Dinosaur is slated for a May 2014 release, and another six Pixar releases are set to roll out between 2015 and 2018.

So while Lone Ranger is an ugly stain on Disney’s P & L sheet, the future of the company looks sound. The company is set to unleash a barrage of proven brands and franchises over the next five years that, coupled with their enduring licensing empire, should keep the company solidly in the black for the foreseeable future.

Disney’s stock currently sits at $64.71 a share. The stock has gained 29.97 percent on the year, and is up 116.06 percent since 2008. Disney’s next earnings report is expected on Aug. 6.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
DIS Walt Disney Company (The) 91.72 -0.24 -0.26 9,167,391
V.MDL Medallion Resources Ltd. 0.03 0.00 0.00 29,000

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