Back With A-Vengeance? Disney Stock Hits All-Time High on Super-Hero Hit

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Disney shares hit an all-time high Wednesday, thanks in part to the record-breaking opening performance of the The Avengers, which the media giant distributed. On Tuesday, Disney announced plans for a sequel.

The Mouse is in the house. Shares of venerable entertainment icon Disney hit an all-time high Wednesday, powered by strong performance from its theme parks and cable networks, as well as red-hot buzz from The Avengers, which shattered box office records with a $200 million haul over the weekend. Disney, which distributed the film, promptly announced plans for a sequel, as it aims to move on from the disastrous performance of John Carter, which cost the studio $200 million in one of the most dramatic flops in recent history.

Disney’s strong recent showing is all-the-more noteworthy at a time of intense competition in the media business, not only from the company’s traditional rivals like Viacom, News Corp., and Time Warner (parent company of TIME), but also from new media upstarts like Netflix, YouTube and even Facebook, which are challenging old media titans for the attention and mind-share of the public. At a time when consumers have become increasingly fragmented thanks to the Internet, with more choices than ever before, the success of The Avengers shows that a big-money blockbuster can still appeal to a vast swath of the public.

Disney shares were up 2.4% to $45.37 in mid-day trading Wednesday after the company said quarterly profit rose 21% on sales growth of 6%. In an interview, Macquarie Equities Research analyst Tim Nollen attributed the company’s strong showing to “the two key drivers of Disney overall” — TV networks like ESPN, which enjoyed 42% advertising gains, and the company’s theme parks which saw attendance and profit margin gains. “Disney is all about ESPN and the parks,” said Nollen, who has neutral rating on the stock and price target of $45 per share.

Nollen described the second-quarter performance of Disney’s film business as “a bust,” citing the John Carter loss, but said The Avengers, which has already racked up $700 million in global box office “more than make up for this” next quarter. Disney purchased Marvel, the comic book icon behind The Avengers and related hero franchises like Iron Man and Captain America, in 2009 for over $4 billion.

(More: Beyond Marvel-ous: The Avengers Smashes Records with $200.3 Million)

“There is definitely a halo-effect from The Avengers,” said Nollen. “And this is not just a one-off big film. They’ve also announced sequels and plans for the theme parks. This is the Disney model: create a franchise and just milk it for profits in a lot of different forms.”

On a conference call with analysts, Disney CEO Robert Iger touted The Avengers‘ record-breaking opening weekend. “It’s a great illustration of why we like Marvel so much: great characters, great storytelling, and the wonderful ability for them to bring their characters and stories to the big screen so effectively,” Iger said in comments cited by the LA Times. He announced plans for a sequel, as well as new merchandise and theme-park character introductions based on the film.

Despite the film’s headline-grabbing success, however, Disney’s movie division remains a small part of the company’s overall business. The company’s TV networks, including ABC, ESPN, and the Disney Channel make up almost half of its earnings, while the theme parks division comprises 28%. The company faces strong competition for eyeballs in an already saturated media market. So far this year, the company’s stock is up nearly 15%, outperforming industry peers like News Corp., Viacom, and Time Warner, but under-performing rivals like CBS, and Comcast.

“There’s a difference between being a great company and being a great stock,” said Nollen. “As a company, Disney is in a position that’s second to none. It has this incredible brand power and the ability to leverage brands across so many platforms. But as a stock, it’s a little bit different. As a big sprawling conglomerate with so many moving parts, it can be hard to make all the pieces work together.”

Nollen said that big media conglomerates usually carry a discount, but not Disney, which is trading at 15 times earnings, compared to 13 for CBS and 11 for Time Warner. “That’s why I have a neutral rating on the stock,” he said. “At 15 time earnings, it’s too expensive.”

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