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Summary

  • The company is fairly valued on next year's earnings estimates.
  • The near and long-term earnings growth potential are excellent.
  • This is a great company that's sitting on lots of golden content.

The last time I wrote about Walt Disney Co. (NYSE:DIS) I stated, "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." Since the time the article was published, the stock dropped 4.49% over the next couple of months (that was your chance to buy it) then bounced to the tune of 5.77% versus the 0.28% gain the S&P 500 (NYSEARCA:SPY) posted. Disney (DIS) is a diversified worldwide entertainment company which operates in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive.

On February 5, 2014, the company reported first quarter earnings of $1.04 per share, which beat the consensus of analysts' estimates by $0.13. In the past year, the company's stock is up 34.33% excluding dividends (up 35.56% including dividends) and is beating the S&P 500, which has gained 18.01% 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.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 21.24, 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 16.93 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.59), 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 13.37%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.37%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 15.55%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to it.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

24Dec13

72.40

21.42

16.09

4.50

67

1.49

14.36

10Apr14

77.51

21.24

16.93

4.58

68

1.59

13.37

Financials

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 1.11% with a payout ratio of 24% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8.1%, 15% 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 1.11% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

24Dec13

1.19

25

7.6

14.3

9.9

10Apr14

1.11

24

8.1

15.0

9.9

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock dropping from overbought territory since 06Mar14 with a current value of 40.22. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($77.51), I'm looking at the 50-day simple moving average (currently $79.12) to act as resistance and $73.96 to act as support for a risk/reward ratio which plays out to be -4.58% to 2.08%.

Recent News

  1. Captain America: The Winter Soldier made $39.2 million in China for the first three days. Disney has already made over $300 million globally off of the movie.
  2. Frozen catapulted into the top ten all-time movie earners. The movie has made a total of $1.07 billion for the company.
  3. The company recently purchased Maker Studios for up to $950 million. Maker Studies is the top YouTube content provider through 380 million YouTube channel subscribers and 5.5 billion monthly video views.

Conclusion

Disney is definitely sitting on a gold mine of content and this entertainment conglomerate is hitting on all cylinders. I just wish the company can provide a quarterly dividend and a yield closer to 2%. Fundamentally, the company is fairly valued on next year's earnings and on earnings growth potential while short and long-term earnings growth expectations are excellent. Financially, the ratios have increased from the previous quarter but the dividend is miniscule. Technically, the stock is experiencing bearish momentum and may be taking a breather. Due to the bearish momentum, low dividend yield, and overall market volatility I will not be pulling the trigger on this name right now.

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.

Source: Walt Disney: The Dividend Soldier