FY2018 is off to an excellent start for The Walt Disney Company (NYSE:DIS) with a confluence of growth catalysts via streaming, studio strength, Fox acquisition and tax reform legislation. Disney has been establishing a firm footing in the streaming space via Hulu (30% stake and will likely be expanded to a majority 60% stake after the Fox acquisition), BAMTech, Sling, ESPN streaming service and a Disney branded service coming in 2019. The studio segment is off to a great start with record-breaking movie releases such as Thor: Ragnarok and Star Wars: The Last Jedi surpassing $850 and $900 million in worldwide box office receipts, respectively. Disney is evolving to address the deteriorating Media Networks business segment with major streaming initiatives. Disney has one of its biggest movie slates for FY2018 with Blank Panther, The Avengers: Infinity War and Solo: A Star Wars Story around the corner. Disney also announced that it is acquiring 21st Century Fox’s assets to further drive growth for $52 billion. This acquisition brings in noteworthy studio assets such as more Marvel properties (X-Men, Fantastic 4 and Suicide Squad) and Avatar along with TV content, regional sports and a 60% majority stake in Hulu. Disney currently pays a 33% effective tax rate and now with tax reform signed into law; this rate will be dramatically reduced a third to 21%. Disney can deploy more cash into growth initiatives and return value to shareholders via increased dividends and share buybacks with the increased cash flow. Disney offers a compelling long-term investment opportunity considering the growth, Fox acquisition, pipeline, Media Networks remediation plan, diversity of its portfolio, tax reform, share repurchase program and dividend growth.
Transformative Fox Acquisition
Disney shelled out $52 billion to acquire many of Fox’s assets to drive future growth in regional sports, movies, TV programming and foreign market penetration. This is a transformative acquisition as Disney will take control of the movie studio and significant TV production assets and gain exposure to international markets through Fox’s networks via a 39% ownership of Sky (Figures 1, 2 and 3). In addition to the movie studio, TV production and international assets such as Star and Sky, Disney will also add entertainment networks such as FX and National Geographic. Bob Iger stated that the deal should close in 12-18 months and highlighted the chance to expand Fox's Avatar franchise particularly considering new theme park lands. In addition to expanding the Marvel Universe via X-Men, Fantastic Four, and Deadpool, Disney will obtain Fox's distribution rights to the first Star Wars film. The deal will be accretive to EPS for the second fiscal year after closing, says Disney CFO Christine McCarthy, and Disney expects roughly $2B in cost synergies by 2021. Taking a majority stake in Hulu will further accelerate Disney’s streaming capabilities and compete directly with Netflix (NFLX). Taking majority control of Hulu is going to be beneficial and result in "flowing more content in Hulu's direction," and managing Hulu "becomes a little more clear, a little more effective." Turning to sports, combining Fox’s sports content with Disney’s ESPN will be synergistic and a "perfect complement" to ESPN's offerings, which are national in nature and will benefit from regional focus, Iger says. Continue reading "Disney: Fox Acquisition, Streaming, and Tax Reform"
Hello traders everywhere. The stock market is finishing up the week mixed, much like the entirety of the week was. We saw wild swings in both the stock market and Bitcoin. And it might not be over yet with a couple of things looming.
There's potential for a government shutdown. On Thursday, the House passed a bill to avoid a government shutdown, but the bill is now in the Senate's hands, where 60 votes are needed to send it to President Donald Trump's desk. Most experts believe that there is a 50/50 percent chance that we will see a shutdown. Historically, a government shutdown has led to a short-term pullback in the stock market.
Consumer sentiment unexpectedly declined in January to a six-month low as American households viewed the economy less favorably, as reported by the University of Michigan report that was released Friday.
The decline in sentiment included a decrease in a measure of buying conditions for big-ticket goods, indicating consumer spending may slow early this year after a solid holiday shopping season.
The setback in purchasing conditions was mainly due to less attractive pricing, according to the University of Michigan. That was reflected in a pickup in increases in expected inflation rates over the coming year and longer term.
At the same time, the expectations index remained stable, with 70% of respondents saying they thought the impact of the tax reform act would be positive. What's more, the survey showed lingering strength in personal finances. Improved finances were reported by half of all respondents, matching the 2017 average which was the best in 17 years.
Key levels to watch next week: Continue reading "Wall Streets Wild Week"
On January 2, 2018, Byron R. Wien, Vice Chairman in the Private Wealth Solutions group at Blackstone, issued his list of Ten Surprises for 2018. “Byron defines a “surprise” as an event that the average investor would only assign a one out of three chance of taking place but which Byron believes is “probable,” having a better than 50% likelihood of happening.”
Byron’s Ten Surprises for 2018 includes
“The price of West Texas Intermediate Crude moves above $80. The price rises because of continued world growth and unexpected demand from developing markets, together with disappointing hydraulic fracking production, diminished inventories, OPEC discipline and only modest production increases from Russia, Nigeria, Venezuela, Iraq, and Iran.” Continue reading "Why $80 Crude Oil Is Highly Unlikely In 2018"
The U.S. bond market took it on the chin again last week. The question is: Was this is a harbinger of even higher yields to come or just an overreaction to some potentially scary headlines – some of which turned out to be fake news – and therefore a potential buying opportunity?
“Bond King” Bill Gross started the fun on Tuesday when he tweeted out these ominous words: “Bond bear market confirmed.” He did tone that down in his market commentary to his Janus Henderson clients, saying, “We have begun a bear market although not a dangerous one for bond investors. Annual returns should still likely be positive, although marginally so.”
Still, that’s not a whole lot to be happy about, unless you’re heavily invested in stocks, where the returns may be even worse, i.e., negative. The other so-called Bond King, Jeffrey Gundlach of DoubleLine Capital, predicted that the S&P 500 Index would end the year with a negative return. He also said that if the 10-year Treasury yield pushes past 2.63% – which it almost did last week – it will accelerate higher.
The news got worse after that. Continue reading "Are We Really In A Bond Bear Market?"
Another year has passed, and we have started 2018 looking for new opportunities and facing new challenges. It is time to see the result of the 4th Pendulum swing published in the middle of 2017. To remind you, we had pitted palladium against orange juice in that race and below are your bets for that experiment.
Chart 1. Poll results
Chart courtesy of INO.com
These poll results show a good split of opinions as it wasn’t ultra-biased in favor of the metal. The majority of readers hit it right as their prediction came true and palladium (+23.5%) could easily beat not only the orange juice (1.7%) but most of the futures over the last half of the year, ranking the 6th. Moreover, this is the first failure of the experiment as it was thought that the previous loser orange juice would beat the last winner palladium, but it didn’t happen.
I am not upset about this outcome because when you start an experiment, you like to see how your hypothesis works out. Any success or failure is the part of a test, and quite often you find out something genuinely new, which is outside of your initial thought. Many things in this world are invented during the experiments that were meant to find something different.
From the very beginning, I knew that one thing was inevitably imperfect in this experiment, I always choose the top performing/underperforming metal instead of the top losing/gaining futures against the other futures to stay focused on the metals. Another thing is the period of the experiment. This is also a crucial variable of the experiment. So far it works pretty well, and I would tune only the first imperfection to let the futures, not metal to be picked against each other from now on. Continue reading "Pendulum Experiment No.4: The First Failure"