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I love the Magic Kingdom, and who doesn't? In the summer, when I was a kid, we'd go to Disneyland almost every other weekend (that was before it cost $100-or more- to get in). What a blast! These days my portfolio could use a little magic, and so I am wondering if it's time to buy shares in Disney (NYSE:DIS)?

The stock price performance over the last year is shown in figure 1 and is sitting at a 52-week high (as of 2/19/13).

Figure 1:

(click to enlargeDisney Stock Price

Here are some additional Disney metrics (*courtesy of Yahoo Finance):

P/E TTM*:

17.61

Beta*:

1.13

Dividend Yield (%)*:

1.30

9 year earnings growth rate (%):

19.0

Mice Names:

Mickey and Minnie

To determine a fair value for this company, I'll compare the actual stock price to a price resulting from a fair value PE of 15 and 17. Figure 2 below is a plot of this data at fiscal year end for the last 10 years. The stock price is currently trading at a PE ratio of about 16.7, which for a company with an earnings growth rate of greater than 15% per year, is not an overvaluation. In fact, my results from estimating future return would indicate this remarkable franchise may be at or just under fair value.

(click to enlarge)DIS Val
Figure 2

Table I shows the earnings yield estimates used to understand a range of possible future values for Disney. The earnings estimates for 2013, 2014 and 2015 are from the February 6th Equity Research Report from Credit Suisse (which currently has an Outperform rating on Disney). I used a 19% growth rate for 2016-2019, assuming the company continues the 19% growth rate it has had for the last 9 years.

30-Sept

Actual Share Price

EPS

Chg.Yr (%)

Est. Share Price

PEX15

Est. Share Price

PEX17

Est. Share Price

PEX20

2011

30.16

2.52

24.0

37.80

42.84

50.40

2012

52.28

3.13

24.2

46.95

53.21

62.60

2013

3.42E

9.2

51.30

58.14

68.40

2014

3.92E

14.6

58.80

66.64

78.40

2015

4.57E

16.5

68.55

77.69

91.40

2016

5.44E

19.0

81.57

92.45

108.77

2017

6.47E

19.0

97.07

110.02

129.43

2018

7.70E

19.0

115.52

130.92

154.02

Table I

I've plotted the future earnings scenarios in Figure 3:

(click to enlarge)DIS Fut Val

Figure 3

The 5 year estimated target stock price and return are:

EstimateStock Price in 5 Years5 Year Total Return (%)
PEX15$ 9713.2
PEX17$11016.0
PEX20$12919.8

This projected performance makes Disney a very attractive investment opportunity. The dividend yield of 1.3% is an added piece of the valuation not included in the above.

The February 16th Standard & Poor's Stock Report for Disney reveals that the company plans to open another park in Shanghai, China by 2016 -- another money making machine.

In my opinion, now is the right time to become a Disney investor. As the economy continues to improve, Disney will benefit since more discretionary income will become available to spend at Disneyland, on Marvel Entertainment (another Disney holding - comic book characters), and Star Wars Episode 7 (can't wait!).

Source: Disney: Is It Time For Portfolio Magic?