Walt Disney acquires full control of Disneyland Paris

Taking into account the lackluster media segment revenue in the second-quarter of fiscal 2017, we had conveyed our interest to purchase a put option in the stock of Walt Disney (NYSE: DIS) on May 15th .

The stock, which was trading at about $110 at that time, fell to a low of about $104.06 a week later. That gave us profit in the binary option trade. For the past few weeks, the stock is consolidating at 105 levels.

On the basis of latest developments pertaining to the company, we anticipate a bullish reversal in the stock of Walt Disney.

The Burbank, California-based company announced last week that it has completed acquiring 97% of Euro Disney SCA’s shares. It can be remembered that in February, Disney made an offer of €2 per share to acquire outstanding shares of Euro Disney, the holding company of Disneyland Paris Resort. The buy back offer was announced after Walt Disney purchased the shares held by the largest investor, Kingdom Holding Co. At the time of announcement of buyback offer, Walt Disney had plans to increase its stake to 85.7%.

Disneyland Paris

With a 97% stake, the company has the right to force a buyback of the remaining shares, according to the French regulations. Walt Disney expects to complete the process of buyback this week. The Euro Disney stock is no longer traded in the French stock exchange.

The theme park in Paris would be the third fully owned park of the Walt Disney company, following the completion of share buyback. Due to a decline in tourist visits to France and the weak European economy, the multi-gated theme park has not been successful so far. With a full ownership, Walt Disney is now free to make any changes that would turn the theme park into a profitable venture. To commemorate the 25th anniversary day, Walt Disney has already started renovating some portions of the park.

Considering the successful buyback, RBC Capital has issued a target price of $130 for the stock of Walt Disney. Likewise, analysts at Deutsche bank have reaffirmed their “buy” rating with a target price of $125. The stock of Disney has also yielded 55.39% more than Dow’s average returns in the past 53 month period. Walt Disney has also increased the dividend for seven of the last 10 years. The free cash flow has doubled to $12 billion, from $6 billion in 2007. Walt Disney also has a five star rating, with a target of $120, from S&P Capital IQ. Thus, considering the strong cash flow, completion of acquisition of Paris theme park, and analysts’ upgrade, we expect the stock to turn bullish.

Technically, the stock has bounced off the support at 104.30. The money flow index has made a positive divergence with the price, while the accumulation/distribution indicator is rising. Thus, we forecast an uptrend in the stock of Walt Disney.

To benefit from the analysis, we wish to acquire a call option contract offered by a suitable binary broker. We would invest only if the contract remains active until June 29th . In order to lower the risk, a strike price of $104 is preferred.

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