Disney Still Has the Magic - Barron's

Aug. 2.09 | About: The Walt (DIS)

Barron's Avi Salzman makes the case for Disney (NYSE:DIS), arguing the stock is a good buy despite its less-than-impressive earnings report.

Reporting Q3 results last week, Disney narrowly beat earnings estimates but missed revenue expectations. The company has been hit by a poor advertising market and a tough economy. Despite promotions to lure customers, theme park bookings are still down.

Even so, Disney is managing the downturn much better than skeptics thought it would. For one thing, Disney has 21.5% operating margins even though it offered aggressive discounts to customers, better than some bearish estimates and a definite improvement over the 18.9% and 15% of the previous two quarters. Revenue numbers were actually better than what was reported, as part of the apparent cable programming weakness stemmed from an accounting technicality. After suspending buybacks last year, management said it expects to buy back stock 'in the relatively near future.' There are further signs that the company is beginning to stabilize, which CEO Rob Iger acknowledged on the earnings call.

The stock trades at a reasonable 14.6 times estimated earnings for the next four quarters, vs. a 13.6 multiple for other firms in the industry.

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  • Disney: FQ3 EPS of $0.52 beats by $0.01. Revenue of $8.6B (-7%) vs. $8.8B. (PR)
  • Among some recent Disney product innovations: a $350 netbook aimed at kids and branded with Disney characters, and plans for its Japan unit to begin selling movies on fingernail-sized flash memory cards, allowing videos to be watched on cell phones and other portable devices.