Although Walt Disney Co. (DIS) is a mature company, it appears to be making great strides to continue its growth in the future. Mature companies such as Disney aren't typically considered exciting investment opportunities but what they do provide are stable returns with low volatility. Disney is no exception and below are 4 reasons why investors should consider investing in this entertainment giant right now.
Reason #1: Fundamentals
Walt Disney recently announced their second quarter results on May 7, 2013. The results were extremely positive. Diluted earnings per share increased 32% to $0.83 compared to just $0.63 during the same period a year ago.
Robert Iger said the following about the performance:
With adjusted earnings per share up 36% over last year, we're obviously pleased with our second quarter. Our results reflect our successful strategy, the strength of our brands and the value of our high-quality creative content, all of which continue to drive long-term growth and shareholder value.
If we look more closely at some of the metrics, we will see that it was indeed a quarter that investors and management should be pleased with. Revenues came in at $10.6 billion, compared to just $9.6 billion from the same period a year ago. Net income came in at $1.5 billion, an increase of roughly $400 million from the year ago period.
What's even more impressive is that Disney generated an increase in each of their 5 major business segments. Media networks, parks and resorts, studio entertainment, consumer products, and interactive all generated more revenue during this 3 month period than the same period a year ago. The largest increases came in parks and resorts and studio entertainment, which showed a 14% and 13% revenue increase respectively. Besides the impressive fundamentals, the company also showed that it can increase costs and attendance at its parks, which is quite an impressive feat.
Reason #2: Increased Costs Doesn't Mean Reduced Attendance
While examining the company's quarterly report, I was interested in the parks and resorts details. This segment's revenues increased by 14% to $3.3 billion and the operating income increased 73% to $383 million. Disney noted that the increases were due both to increased guest spending and attendance at the parks. The company also noted that increased guest spending was due to higher average ticket prices, food, beverage and merchandise spending and daily hotel room rates. So not only did park attendance increase, but those in attendance were willing to spend more on rooms and other offerings than in the past. That seems like a pretty telling sign that Disney is doing what it needs to do to keep the company growing at a significant rate.
Reason #3: Future Movie Offerings & Revenue
After parks and resorts, studio entertainment showed the largest revenue increase, quarter over quarter. Revenues increased 13% to $1.3 billion and operating income increased $202 million to $118 million. The increases were due to strong performance by "Oz The Great and Powerful" and "Wreck-it Ralph" compared to "John Carter" in the prior year's quarter.
John Carter, in the prior year's quarter, had an estimated budget of $250 million and only ended up grossing $73.1 million in the U.S. That's clearly not good enough. However, this time around, Disney had two standout performances. Oz the Great and Powerful had a budget of $215 million but grossed $226.3 million in the U.S. alone. Wreck-it Ralph had an estimated budget of $165 million but went on to gross $189.4 million in the U.S. alone. So clearly Disney has succeeded in finding movies that appeal to the masses during this quarter. But what does the future hold?
Well, so far Disney is off to a great start. Iron Man 3 recently had its opening weekend and grossed $174.1 million in the U.S. alone. With an estimated budget of $200 million, the movie will end up being one of the biggest money makers of all-time.
Reason #4: Technical Picture
It's always easier to buy a stock that appears to be headed higher than one that is flat or negative trending. And Disney has one of the best looking charts around. Below is a 1 year chart for the company.
As the chart shows, the share price has increased roughly 44% during the past 52 weeks. We can compare that performance to the broader market by looking at the S&P Depository Receipts (SPY) that tracks the general market. The performance of the SPY has only generated 52 week returns of approximately 18%.
So Disney has outperformed the broader market by more than double. In addition, let's not forget the dividend yield of 1%. Although small, it still adds to the investor return.
The 4 reasons laid out above clearly demonstrate why Disney appears to be a superior investing opportunity at the present moment. Besides an impressive earnings report, the company has shown the ability to grow all of its business segments and position itself well for the future.