"The Walt Disney Company, together with its subsidiaries and affiliates, is a leading diversified international family entertainment and media enterprise with five business segments: media networks, parks and resorts, studio entertainment, consumer products and interactive media. Disney is a Dow 30 company and had annual revenues of about $40.9 billion in its last fiscal year."
Earnings and Price Correlated Fundamentals-at-a-Glance
A quick glance at the historical earnings and price correlated FAST Graphs™ on The Walt Disney Company shows a picture of slight undervaluation based upon the historical earnings growth rate of 19%. However, since analysts are expecting the earnings growth to somewhat slow down, when you look at the forecasting graph the stock appears slightly overvalued (however, it's still within the value corridor of the five orange lines - based on future growth).
Earnings Determine Market Price: The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings. The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line. On graph after graph the lines will move in tandem. If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.
The Walt Disney Company: Historical Earnings, Price, Dividends and Normal P/E Since 2003
Click to enlarge
Performance Table - The Walt Disney Company
The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return; capital appreciation and dividend income. Dividends are included in the total return calculation and are assumed paid, but not reinvested.
When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident. In addition to the 12.4% capital appreciation, long-term shareholders of The Walt Disney Company, assuming an initial investment of $100,000, would have received an additional $16,492.39 in dividends (light blue shaded area on historical graph) that increased their total return from 12.4% to 13% per annum versus 6.5% in the S&P 500 (red circle).
The following graph plots the historically normal P/E ratio (the dark blue line) correlated with 10-year Treasury note interest. Notice that the current price earnings ratio on this quality company is somewhat normal as it has been since 2007.
A further indication of valuation can be seen by examining a company's current price to sales ratio relative to its historical price to sales ratio. The current price to sales ratio for The Walt Disney Company is 2.19 which is historically high.
Looking to the Future
Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:
1. The rate of change (growth rate) of the company's earnings
2. The price or valuation you pay to buy those earnings
Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound, and profitable performance.
The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.
The consensus of 30 leading analysts reporting to Capital IQ forecast The Walt Disney Company's long-term earnings growth at 13.5%. The Walt Disney Company has low long-term debt at 22% of capital. The Walt Disney Company is currently trading at a P/E of 17, which is inside the value corridor (defined by the five orange lines) of a maximum P/E of 18. If the earnings materialize as forecast, The Walt Disney Company's True Worth™ valuation would be $86.88 at the end of 2017, which would be a 12.5% annual rate of return from the current price.
Earnings Yield Estimates
Discounted Future Cash Flows: All companies derive their value from the future cash flows (earnings) they are capable of generating for their stakeholders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.
Since all investments potentially compete with all other investments, it is useful to compare investing in any prospective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in The Walt Disney Company to an equal investment in 10 year Treasury bonds, illustrates that The Walt Disney Company's expected earnings would be 7.5 times (blue circle) that of the 10 Year T-Bond Interest. (See EYE chart below). This is the essence of the importance of proper valuation as a critical investing component.
Summary and Conclusion
This report presented essential "fundamentals at a glance" illustrating the past and present valuation based on earnings achievements as reported. Future forecasts for earnings growth are based on the consensus of leading analysts. Although, with just a quick glance you can know a lot about the company, it's imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.
Disclosure: No position at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. A comprehensive due diligence effort is recommended.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.