Seeking Alpha
Follows Benjamin Graham method, deep value, value, long only
Profile| Send Message|
( followers)  

Here is a look at how Disney (NYSE:DIS) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3-year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary (Calculator)

Key Data:

MG Value$71.18
MG OpinionFairly Valued
Value Based on 3% Growth$43.59
Value Based on 0% Growth$25.55
Market Implied Growth Rate7.31%
NCAV-$12.68
PEmg23.12
Current Ratio1.25
PB Ratio2.87

Balance Sheet - 6/30/2013

Current Assets$14,205,000,000
Current Liabilities$11,341,000,000
Total Debt$12,784,000,000
Total Assets$80,565,000,000
Intangible Assets$34,772,000,000
Total Liabilities$37,029,000,000
Outstanding Shares1,800,000,000

Earnings Per Share - Diluted

2013$3.38
2012$3.40
2011$2.75
2010$2.21
2009$1.92
2008$2.28
2007$2.24
2006$1.63
2005$1.24
2004$1.12
2003$0.65
2002$0.60

Earnings Per Share - Modern Graham

2013$3.01
2012$2.72
2011$2.34
2010$2.11
2009$2.00
2008$1.92

Conclusion:

The Walt Disney Company is another stalwart of the American business world. The company has fairly strong financials and has a very strong history of earnings growth. Unfortunately, defensive investors and enterprising investors following the approaches set forth in Benjamin Graham's The Intelligent Investor set very stringent requirements for the companies in which they invest, and Disney does not pass those requirements. In particular, the company has a poor current ratio and trades at a high PEmg ratio. From a valuation perspective, the company does seem to be fairly valued, as the market implied growth rate is very close to what has been seen historically.

Disclaimer: The author was long Disney at the time of publication.

Source: ModernGraham Valuation Of Disney