Disney's Q4 Results Were Solid, But Shares Remain Fairly Valued

| About: The Walt (DIS)

Recently, Disney (NYSE:DIS) released better-than-expected fourth-quarter results. Revenue for the period jumped 7%, while segment operating income advanced 6%. Disney's quarterly performance was led by accelerated growth in the company's 'Consumer Products' segment (up 14%), though revenue expansion in the firm's 'Media Networks' segment slowed to 1% in the quarter versus a 5% pace for the fiscal year.

Segment operating income in the company's 'Media Networks' division was the only segment to experience a decline, though we note that profits at the rest of the firm's business segments performed incredibly well. Adjusted for the recognition of previously-deferred ESPN affiliate fee revenues (a transitory factor), however, operating income would have advanced in the company's 'Media Networks' segment as well.

Disney's net income and diluted earnings per share leapt 12% and 13%, respectively, while cash provided by operations improved significantly from last year's quarter, to $2.74 billion. Free cash flow in the quarter nearly tripled to $1.75 billion (or 15.1% of sales). For the year, free cash flow totaled $6.7 billion, or 14.8% of annual revenue. Disney continues to be a fantastic cash-flow generator.

Image Source: Disney

On the conference call, Disney made two important announcements:

"One is that (Disney) has set an official release date for Star Wars Episode VII, December 18, 2015. This obviously is one of the most important movies we have in the next few years and we've chosen a date we believe will allow the creative team (enough) time to make a great film. It's also the date Avatar opened in 2009.

The second announcement is Disney's unprecedented deal to create multiple live action series and a mini-series event exclusively for Netflix (NASDAQ:NFLX), beginning in 2015. Under the agreement, Marvel TV in association with ABC Television Studios will develop four serialized programs featuring some of the Marvel's popular characters; Daredevil, Jessica Johns, Iron Fist and Luke Cage. This original program will run over a multiple years and lead to a Marvel's The Defenders mini-series event that reimagines dream team of heroic characters. Both of today's announcements underscore the value of two of our major acquisitions Marvel and Lucasfilm."

Valuentum's Take

Disney's fourth-quarter results were solid, and while some may be disappointed in the timing of the release date of Star Wars Episode VII (they wanted it earlier), preserving the brand is far more important than releasing a subpar episode that may harm the revenue that could be generated from each subsequent episode. Star Wars Episodes VII, VIII, and IX are planned to be released in a 6-year time frame. It will be very important for Disney that Episode VII resonates with consumers, and management knows this. Shares of Disney are trading within our fair value range at this time, so we are not considering them for inclusion in the portfolio of our Best Ideas Newsletter at this time.

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.