Shares of The Walt Disney Company (NYSE:DIS) continue to trade near their highest levels for the year. The worldwide entertainment company received some bullish comments from analysts at FBR Capital.
Shares of Disney have risen some 39% year to date on the back of strong momentum, which has limited the short to medium term potential to my opinion. As such FBR's upgrade might be a bit late, although I continue to like the very long term prospects of the firm.
FBR Sees More Upside
Analysts at FBR Capital initiated their coverage on Walt Disney, starting with an "outperform" rating, accompanied with a $84 price target. This implies that shares have some 21% upside from current levels.
Analyst Barton Crockett sees multiple catalysts fueling even greater interest in the shares in the coming years. He notes that the pending ESPN distribution renewal with satellite TV providers, a reboot of Star Wars, and a pending theme park rollout in Shanghai could all boost the future appeal of Walt Disney.
Disney ended its third quarter with $3.93 billion in cash and equivalents. Total debt stood at $15.00 billion for a net debt position of $11.1 billion.
Revenues for the first nine months of the year came in at $33.47 billion, up 6.3% on the year before. Earnings rose by 6.8% to $4.74 billion.
Note that Walt Disney is scheduled to release its fourth quarter results on the 7th of November. Walt Disney is currently on track to generate annual revenues of around $45 billion as earnings could come in around $6.1 billion.
Trading around $69 per share the market values Disney at $123 billion. This values equity in the firm at 2.7 times annual revenues and 20 times annual earnings.
Disney currently pays an annual dividend yield of $0.75 per share, for an annual dividend yield of 1.1%.
Some Historical Perspective
Over the past decade, Disney has been mostly a dormant stock, but investors have seen real upside over the past two years. Between 2004 and 2011, shares have traded in a $20-$40 trading range. Over the past two years shares have risen toward highs around $70 per share at the moment.
Between 2009 and 2012, Disney has increased its annual revenues by a cumulative 17% to $42.3 billion. Yet profitability has gone up significantly with earnings advancing by 72% to $5.7 billion.
Back in August of this year, I last took a look at Disney's prospects. Shares were trading around $66 per share and have risen some 5% ever since.
I concluded that I have been a long-term bull on Disney. The cable business is providing solid cash flows. While many investors take a negative stance toward the volatile performance of the studio entertainment business, the unit is crucial in creating long-term cash flows. Consumer product sales and theme park revenues are still coming in on a daily basis, on the back of movies and characters being invented decades ago.
At the time, Disney reported its third quarter earnings report which was a bit soft. The company also guided for a $160-$190 million loss to be taken regarding the "The Lone Ranger" movie.
I remain optimistic for the long term, although there are few reasons to expect spectacular short-term outperformance. The relative "full" valuation at 20 times earnings, combined with a modest dividend yield limit the short to medium term potential.
While long-term returns should continue to be solid, given the really strong cash flow profile of the business, I would not be a buyer at today's elevated levels.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.