3 Reasons to Buy Disney on the Dip

By Rick Munarriz Markets Fool.com

Shares ofDisney (NYSE: DIS)moved lower on Wednesday, after the company posted mixed quarterly results. Revenue climbed 3% and adjusted earnings per share rose 10%.Analysts were holding out for a little more on the top line, but there was another beat on the bottom line. The media giant has come out ahead of Wall Street profit targets in three of the past four quarters.

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The biggest concern heading in and coming out of the fiscal second quarter is ESPN, as rising programming costs and a shrinking subscriber base make for a problematic equation. Thankfully for Disney investors, the shares continue to trade near the 52-week highs set just two weeks ago. Let's go over a few of the reasons the earnings-related sell-off could be a buying opportunity.

Image source: Disney.

1. ESPN concerns may be overblown

No one seemed concerned about the struggles at ESPN until two summers ago, just as the stock was hitting all-time highs. The odd thing is that ESPN subscribers peaked at 100 million in 2011, and they've been steadily falling with every passing year.

Cord-cutting isn't new, and the story no one is talking about is that Disney continues to make more with less. Disney's media-networks segment, as well as the cable-networks category within that segment, matched Disney's 3% revenue increase. Ad revenue actually inched higher at ESPN, though that would've been a 1% dip if not for the timing of college football playoff games.

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The situation at ESPN is far from ideal, but it's not fatal. Rising content costs are a concern, but pro leagues won't be able to command escalating deals the way they have the past in this new normal. ESPN just completed a round of painful layoffs to get its cost structure closely aligned with the model's reality. Disney also continues to push into new ways to get ESPN content into devices beyond the set-top box.

2. Theme parks are picking back up -- just in time

Disney's theme parks bucked conventional wisdom, as well as the sloppy earlier performance of its peers, by posting a 4% uptick in attendance for the quarter at Disneyland and Disney World combined. Between the timing of the Easter holiday -- going from March last year to mid-April this time around -- and major attractions on both coasts that are opening later this month, we're about to see a surge in revenue at Disney's second largest segment.

The good news won't end after this summer's crowds move on. Key ingredients being put into place this year will make Disney's Animal Kingdom a full-day park operating well into the night from now on. We also have Star Wars Land coming in 2019 to both Disneyland and Disney's Hollywood Studios in Florida.

3. And now, your feature presentation

Disney's third largest segment is studio entertainment, and it's the only one of the top three businesses to not grow its revenue during the quarter. No one's going to smart over a 1% year-over-year dip, though, and the segment's operating profit growth of 21% for the quarter led the way at Disney. The best is yet to come, given Disney's pipeline that includes highly anticipated sequels to major franchises.

There will be no release bigger this calendar year than Star Wars: The Last Jedi. The eighth installment in the franchise promises to be another juggernaut for the media giant that has dominated the box-office charts for the past couple of years.

Disney isn't perfect, but it's hitting on far more cylinders than its lesser peers are. The initial market reaction was bearish and overblown. You have a buying opportunity.

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Rick Munarriz owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.