The last time I wrote about Walt Disney Co. (NYSE:DIS) I stated, that I was going to buy some more shares in the stock because I felt the stock could go higher. Indeed it did go up and never looked back, to the tune of 19.06%! Since the last article it has risen 19.06% versus the 11.21% gain the S&P 500 (NYSEARCA:SPY) posted. On November 7, 2013, the company reported third quarter earnings of $0.77 per share, which beat the consensus of analysts' estimates by a penny. In the past year the company's stock is up 44.8% and is beating the S&P 500, which has gained 27.14% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the services sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 21.42, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16.09 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.49), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 14.36%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 14.36%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 14.56%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.19% with a payout ratio of 25% of trailing 12-month earnings while sporting return on assets, equity and investment values of 7.6%, 14.3% and 9.9%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.19% yield of this company is good enough for me to take shelter in for the time being.
Looking first at the relative strength index chart [RSI] at the top, I see the stock dropping from overbought territory with downward trajectory and a value of 66.27. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars increasing in height but leveling off, indicating the bullish momentum is getting tired. As for the stock price itself ($72.40), I'm looking at $73.71 to act as resistance and $71.69 to act as support for a risk/reward ratio which plays out to be -0.98% to 1.81%.
- On 12Dec13 Credit Suisse raised its price target on the stock to $80. Credit Suisse also increased its fiscal year 2014 earnings estimates for Disney.
- Data mining and tech initiatives such as the company's MagicBands at theme parks are just in the early innings. These types of initiatives will help put highly desirable products in front of a specific consumer which will more than likely cause the consumer to purchase the product.
- The company's movie Frozen pulled in a whopping $31.6 million on opening weekend in the U.S. Though the movie was a big hit, it will be the last one from the Pixar studio until at least 2015.
Disney was selected by Yahoo! (NASDAQ:YHOO) Finance as the company of the year for 2013 because the company hit on all cylinders, and keeping that in mind, fundamentally the stock is fairly valued on future earnings on future growth prospects. Financially the company just increased the dividend by 14.6% while still maintaining a low payout ratio. Technically I see the stock dropping from overbought territory. The company has become fairly valued based on growth, has a low dividend yield, and has some room to drop; it is for these reasons I'm not going to layer into my position for now and wait for a pullback.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long DIS, SPY. 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.