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Prospects For Disney Certainly Aren't 'Frozen'
- Instead of singing “Let It Go,” Walt Disney Co. shareholders in recent years have been saying “watch it go”.
- The media and theme park giant’s revenues have surged to almost $49 billion (as of the September 2014 10-K) from $31 billion in 2005.
- Net income is even more animated, tripling to $75 billion from $2.5 billion over the same period.
Disney Is A Great Earnings Growth Story That I Can Never Seem To Buy
- The company is fairly valued on fiscal 2016 earnings estimates and possesses great near- and long-term earnings growth potential.
- The dividend is tiny but has lots of room to grow while management has been able to increase all financial efficiency ratios.
- I'll admit that the stock has been very elusive from my when trying to buy it because by chance I always take a look at it when fairly valued.
- Disney's five main businesses work well together but are valued in far different ways.
- I'll use the valuations of the businesses in my previous articles and compare the total to Disney's current market cap.
- I'll offer some commentary on Disney's situation and how it could potentially create some value.
Disney: Strong Performance Leads To Another Year Of Records
- Disney reported record revenue and earnings per share for fiscal 2014, along with strong fourth-quarter results.
- The company has shown a very strong history of revenue and earnings per share growth, and analysts expect this growth to continue.
- While the stock might be a bit pricey, 16% average annual earnings per share growth over the next five years may mitigate the effect of overpaying a bit.
Disney's Interactive Business Is The Ugly Duckling
- Disney's Interactive business is by far the smallest and least profitable in the group.
- Interactive has had a string of huge operating losses but turned a solid profit in 2014.
- I'll value Interactive as a standalone business.
Disney's Consumer Business Is The Cream Of The Crop
- Amazing operating margins define Disney's Consumer segment.
- The business is growing operating earnings at nearly 20% per year, justifying a premium multiple.
- I'll value Consumer as a standalone business.
- DIS is not suitable for Defensive Investors or Enterprising Investors following the ModernGraham approach.
- According to the ModernGraham valuation model, the company is fairly valued at the present time.
- The market is implying 8.82% earnings growth over the next 7-10 years, which is within a margin of safety relative to the rate the company has seen in recent years.
- So far in my sum-of-the-parts series I've covered Disney's two largest businesses and will now cover Studio.
- Disney's pipeline of content for the next couple of years portends great results out of Studio.
- The business has rebounded hard out of a recession-driven trough in revenue and earnings but looks very strong for the future.
- Disney's Parks business is firing on all cylinders.
- The Parks business is superior to its competitor set and deserves a premium multiple.
- We'll take a look at Parks' operating performance in recent years and assign it a standalone valuation.
- Disney's Media business is the cream of the crop not only for the company but in the industry as well.
- Media produces the largest proportion of revenue and operating profit and is hugely important for Disney's success.
- I'll value the Media business as a standalone company.
Building A Core Investment Portfolio For The Next 20 Years: Disney
- Every investor should have a solid core investment portfolio they can rely on for steady and worry-free performance.
- Disney has seen strong growth over the past several years due to its strategic acquisitions and organic growth.
- Historical performance, innovation, high barriers to entry, returning value to shareholders and being a best-of-breed are all essential for qualifying as a core holding.
- Disney owns some of the most memorable characters of all time, including Thor, Mickey Mouse, and Luke Skywalker.
- The stock has a low dividend yield but strong growth potential.
- Is Disney fairly valued at current prices?
- Walt Disney shares sit near their all time highs and now trade at 19 times forward earnings.
- A DRAG analysis was performed to examine the company's industry, competitive position, balance sheet and dividend to determine if it deserves this premium valuation.
- Due to its impressive earnings growth potential and flexible balance sheet, Disney shares have further upside potential and should surpass $100 per share over the next year.
- Disney reported Q4 EPS of $0.86, beating the estimate by $0.01.
- FY 2014 EPS were $4.26, up 26% year over year.
- In my original article, I had forecasted significant revenue and earnings growth, so far my thesis has been confirmed.
- I remain with my original conclusion: Disney is undervalued at the current price.
Update: Disney - Studio Powers Earnings But Networks Could Weigh On The Stock
- Studio and Parks impress in Q4, in line with my expectations.
- But Media Networks disappoint due to higher programming costs.
- Disney’s cautious tone regarding Media Networks suggests limited earnings growth for the unit in FY15.
- That should not prevent the group from delivering EPS growth in the teens in FY15 and beyond.
Update: Disney Year-End Results Reinforce $100 Target Price
- Adjusted EPS for the year increased 27% to $4.32.
- As I previously wrote, Bob Iger is going to be a key driver of shareholder value for Disney thanks to his contract extension until 2018.
- DIS is well on track to meet my 2015 target EPS of $5.00 - $5.25.
- Target price is unchanged but expected to be at the high end of the range at $100.
- Disney reported its 4Q14 results with $0.89 EPS, or 15.6% higher from the same period a year ago.
- On the revenue side, the company hit an annual record of $48.8 billion.
- The growth barrier of Media Networks section will be conquered by launching SEC Network.
Mon, Nov. 24, 10:36 AM
- ESPN (NYSE:DIS) might stray outside the pay-TV bundle for the first time next year with a live streaming subscription service for the Cricket World Cup to be hosted in Australia and New Zealand, reports Re/code.
- In the past, Disney (DIS) typically used EPSN3 as a streaming add-on for pay-TV subscribers.
- Media analysts have speculated in the past that ESPN could peel off some of its programming into a PPV model.
Fri, Nov. 21, 11:12 AM| Comment!
Fri, Nov. 21, 9:39 AM
- Theme park operators see the need to dramatically increase the use of videogame experiences at their parks in order to entice teenagers away from their Xbox and PlayStation environments.
- The concept of "immersion" will be added to many rides with 3-D backdrops, animatronics, and more chances to blast zombies.
- Related stocks: SIX, FUN, SEAS, DIS, CMCSA, PLAY.
Fri, Nov. 21, 7:41 AM
Tue, Nov. 18, 9:41 PM
- Nielsen (NYSE:NLSN) will begin tracking TV viewership on online subscription services in December, sources tell the WSJ.
- The technology used by Nielsen to derive the ratings measurements won't require any cooperation from streamers such as Netflix (NASDAQ:NFLX) or Amazon Prime (NASDAQ:AMZN).
- The development could help content owners compute the impact of licensing their programming and prevent them from having to negotiate in the dark.
- Related stocks: TWX, AMCX, CBS, CMCSA, DIS, FOXA, SNE, LGF, VIA, VIAB, RENT.
Sun, Nov. 16, 7:57 PM
- Interstellar had a strong second weekend at the box office, taking in $29.2M in the U.S. and $135.2M globally as positive word of mouth kept interest high.
- The Paramount (VIA, VIAB) film played in 64 territories.
- Universal's (NASDAQ:CMCSA) Dumb and Dumber To was the top film in the U.S. over the weekend with a $38.1M haul, despite the uncommon 20-year lag between the original and sequel.
- Though Big Hero 6 had another solid weekend in the U.S. with $36M, the bigger news for Disney (NYSE:DIS) is that its movie business passed $4B in annual global box office receipts for only the second time in history.
- The top 12 films in the U.S. earned an estimated $135M, up 13% from the corresponding week from a year ago.
- Movie exhibitor stocks: CKEC, CNK, RGC, MCS, RDI, AMC, IMAX.
Fri, Nov. 14, 2:49 PM| Comment!
Fri, Nov. 14, 10:38 AM
- Dow Chemical (DOW +1%) says it "fundamentally disagrees" with the position outlined by Dan Loeb's Third Point hedge fund in its latest statement and new website, which the company says reflect the views of "an activist investor that has little interest in anything that benefits [Dow's] many long-term shareholders."
- Jim Cramer is now a fan of Dow, citing the company as an example of a buyback done right; combining Dow's $5B increase in its buyback plan with its total repurchase authorization totals ~17% of market cap.
- Cramer also sees buyback opportunities in FLEX, JACK, M, DIS, KMB, VIA, DPS and AZN.
Thu, Nov. 13, 8:46 PM
- Sony's (NYSE:SNE) new online TV package will price at $60 to $70 per month, estimates Re/code.
- It's a level that is twice what Dish Network (NASDAQ:DISH) plans to charge for a slimmer package, although one that includes ESPN.
- Programming on the Sony streaming service will feature shows from CBS, Discovery Communications, Fox, NBC, Scripps Networks, and Viacom.
- The pitch from the Japanese media giant is that cord-cutters will be drawn in by the captivating way of accessing the content through gaming consoles. A cutting-edge discovery and recommendations service for users is also highlighted by execs.
- Regulatory watch: Potential rule changes from the FCC could level the playing field for the new streamers as they work out their content deals.
- What to watch: A fragmented pay-TV landscape could benefit content producers (DISCA, CBS, FOXA, DIS, LGF, TWX, AMCX) in the short-term as competition heats up, while creating a pricing headache for cable/satellite/telco players (CMCSA, CVC, CHTR, DISH, T, DTV, VZ, TWC).
- The Netflix factor: Many media analysts consider Netflix (NASDAQ:NFLX) an add-on for consumers - instead of an either/or decision with online TV.
Tue, Nov. 11, 7:24 AM
- The FCC votes to uphold a previous ruling by its Media Bureau covering the access by third parties to pay-TV contracts.
- In-person access to the information will open up on November 17 unless programmers win a new court order.
- FCC statement (.pdf)
- Related stocks: DIS, CBS, AMCX, TWX, VIAB, SNI, FOXA, CMCSA, CRWN.
Mon, Nov. 10, 12:16 PM
- Disney's (DIS -0.8%) movie segment reported a $1.55B profit over the fiscal year which ended in September and heads into the next few fiscal years with a higher number of big-budget movies scheduled to be released.
- Walt Disney Studios has 21 films planned for the next three years - compared to the 13 it released over the previous three.
- Studio chief Alan Horn deserves credit for managing the movie business smoothly for the media giant while keeping the independent spirit of Marvel, Pixar, and Lucasfilm largely in place, notes the NYT.
- Disney tent-poles 2015-2016.
- Last week: Studio entertainment helps propel in FQ4
Sun, Nov. 9, 9:52 PM
- Disney Animation's (NYSE:DIS) Big Hero 6 took in an estimated $56.2M during its opening weekend in the U.S. to outpace the debut of Interstellar from Paramount (VIA, VIAB) which also appears to have crossed the $50M level.
- Interstellar's global box office haul was $130M spread across 63 territories, while Big Hero 6 played in 18 markets to $63.8M.
- IMAX (NYSE:IMAX) showings accounted for 25% of Interstellar's box office sales and the film is expected to remain a strong draw in the format up until the premiere of the next Hobbit movie on December 17.
- Big Hero 6 is also tapped to show some legs with no major animated feature due out until November 26.
Fri, Nov. 7, 1:20 PM
- With Disney (DIS -2.7%) having gone into earnings right at an all-time high of $92.00, the media giant is seeing some profit-taking following a slight FQ4 EPS beat.
- FY15 spending guidance is an area of concern for some analysts. CFO Jay Rasulo stated on the CC (transcript) Disney expects FY15 capex to be up $1.5B Y/Y ($1.1B on an adjusted basis) thanks to Shanghai Disney investments, and that cable programming costs are expected to rise by a low-teens percentage due to NFL and college football deals. Also, pension expenses and forex are expected to have a $225M impact on op. profit.
- Sell-side reactions to the FQ4 numbers are generally positive. BofA/Merrill (Buy): "Accelerating Parks, improving cap. returns, an improving Studio outlook, solid Media Networks and better Interactive all offer neat-term upside, while Disney Shanghai and Marvel/Pixar/Lucas film releases and full [retransmission] offer a solid FY15E/16E." The firm's FY15 and FY16 EPS estimates have respectively been hiked by $0.11 and $0.19.
- FQ4 results, details
Thu, Nov. 6, 9:33 PM
- Disney (NYSE:DIS) plans to release Toy Story 4 in June of 2017.
- Tom Hanks, Tim Allen, and director John Lasseter will all return to their roles, according to reports.
- The most recent Toy Story installment in 2010 raked in $415M in the U.S. and another $648M in international markets to rank it as the second-most successful animated feature of all-time behind only Frozen.
Thu, Nov. 6, 4:28 PM
- Disney (NYSE:DIS) saw a strong quarter for its Studio Entertainment segment help drive it to a small FQ4 earnings beat.
- Segment revenue growth: Media Networks +5% to $5.22B; Parks and Resorts +7% to $3.96B; Studio Entertainment +18% to $1.78B; Consumer Products +7% to $1.07B; Interactive -9% to $362M.
- Cable Networks revenue was up 6% while broadcasting revenue rose 5%. Higher programming costs at ESPN contributed to a 1% dip in operating income within the segment.
- Operating income +20% for Disney's theme parks business on higher guest spending.
- The global success of Frozen helped profit increase in both the Consumer Products and Studio Entertainment segments.
- Capex spending +18.4% Y/Y to $3.311B led by continued investment in Disney Shanghai.
- DIS -1.0% AH
Thu, Nov. 6, 4:17 PM
DIS vs. ETF Alternatives
Walt Disney Co, together with its subsidiaries, is a diversified entertainment company with operations in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive.
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