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Disney Might Not Hit Par In 2014, But 2015 Is A Different Story
- The Ebola scare earlier this year presented a good buying opportunity, as all leisure stocks were decimated at the time, and have since come back.
- Frozen merchandise continues to be a great breakthrough for the company's top line, almost making it a no-brainer for a sequel to occur.
- The company recently increased the dividend by a whopping 34%.
Disney's Increased Return On Equity Is Due To Share Repurchases
- Return on equity has increased due to an increasing equity multiplier.
- The equity multiplier increased due to a decrease in average equity with respect to assets.
- Disney's return on equity could increase a bit more if profit margins increase.
- Relative and absolute valuation indicate there is further growth potential for Disney.
- 2015 is poised to be an enormous year for the Disney brand, with the release of the next installments in the Avengers and Star Wars franchises.
- The film division will be the foundation of the company's success in the short term.
Update: Increasing Walt Disney's Share Price Target As Company Declares Dividend
- DIS declared its annual cash dividend of $1.15 per share, an increase of 34% over last year.
- Over the past 5 years, Disney has grown its dividend by an impressive 229%, or a CAGR of 27%.
- Shares have recently traded up toward my target price, which I am now increasing to $110/share.
- Disney raised its dividend by 34% but still yields only 1.15%. Still, this dividend hike has significant symbolic importance.
- Disney will be delivering record results in 2015, and this hike should remind investors of how well Disney is operating.
- Both the parks and TV networks should report solid numbers, but the studio will be the stand-out thanks to massive franchises like The Avengers and Star Wars.
- With strong results and a long growth runway, Disney is a great buy and hold investment.
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.
Dec. 10, 2013, 9:29 AM
- Data mining and tech initiatives are a big focus at Disney (DIS), according to CFO Jay Rasulo. Though the company is still in the "early days" of realizing the revenue potential of features like the MagicBands at theme parks the potential of catering marketing to consumer behavior is enormous.
- On M&A: Nothing on the scale of Lucasfilm or Marvel is being looked at, but it's safe to say that an increase in Disney's buyback plan doesn't mean M&A still isn't on the front burner.
- Virtual MPVD (online TV) is coming. Disney will be willing to license its content. This development is key with ESPN a lynchpin of getting consumers to cut the cord with traditional Pay-TV options.
- The Marvel strategy is to deliver the treasure trove of content throughout the Disney ecosystem. The deal with Netflix is a natural due to the new distribution channel it gives Disney.
- The emergence of rival sports networks from Fox, CBS, and NBC hasn't disrupted programming costs or advertising rates to a large degree, says Rasulo. Ratings have also held up.
- UBS Global Media and Communications Conference webcast
Dec. 9, 2013, 11:47 AM
- Frozen topped the U.S. box office rankings with a $31.6M haul, but perhaps more importantly the Disney (DIS) film did very well in Europe and still has Russia and Italy to debut in this week. More than any other studio Disney gets a lot of bang for its bucks if it delivers a hit with children due to its merchandise and theme park tie-ins.
- Hunger Games: Catching Fire (LGF) fell back to earth with a $27M hold, but is still on pace to eclipse the $400M mark.
- China continues to be a strong market for Gravity (TWX) as the movie has now earned over $64M in the market. The sci-fi thriller has been one of the biggest surprises of the year with a global box office take of over $630M and counting. The movie has also backed up the idea of the must-see IMAX format for particular features.
Dec. 9, 2013, 7:50 AM
- ZenithOptimedia forecasts advertising will grow 5.3% in 2014 to $560B with a solid pace of growth in the U.S. and China supporting the industry.
- TV advertising (CBS, CMCSA, FOXA, DIS, AMCX, DISCA, SNI) is in decline as desktop Internet and mobile continue to draw advertising buyers, but perhaps not as rapidly as some have previously predicted. TV's share of advertising is expected to go from 40.2% of advertising this year to 39.3% in 2016, according to the research firm.
Dec. 6, 2013, 5:43 PM
- Disney (DIS) has acquired the marketing/distribution rights for future Indiana Jones films from Paramount. The media giant already had ownership rights to the films through the Lucasfilm acquisition.
- Paramount will maintain distribution rights for the first four Indiana Jones films, and will financially benefit from the release of future films.
Dec. 6, 2013, 11:02 AM
- The Hunger Games: Catching Fire has another week to dominate the box office before getting a serious challenge from Warner Bros' The Hobbit: the Desolation of Smaug next week. Estimates see the film which has already toppled the $300M level for box office sales in the U.S. pulling another $35M-$40M this weekend.
- Disney's (DIS +1%) Frozen is forecast to add another $30M to $35M to the coffers. The success of the 3-D animation could also help drive consumer products sales for Disney.
- Though shares of Lions Gate (LGF +0.5%) haven't seen a bounce from the Hunger Games frenzy due to the sky-high expectations already baked in, analysts think theater operators (CKEC, CNK, RGC, MCS, RDI, AMC) could report better-than-expected Q4 numbers.
Dec. 4, 2013, 5:23 PM
- The economic argument is lopsided against the Pay-TV industry (CHTR, CVC, TWC, DISH, DTV) moving to an a la carte system, reasons Needham.
- The investment firm has some staggering estimates which indicate consumers could end up paying significantly more for an unbundled system or see a large number of networks close up shop to limit their choices.
- Working backwards, 180 channels at an average annual programming cost of $280M per year requires a bundled system to create the ad and subscriber revenue to support it.
- Though the math might work out fine and dandy, subscriber losses and a younger generation unfazed by cord-cutting indicates something might need to give.
- The wildcard in the mix: Online TV initiatives from Sony, Google, and Intel as well as the evolution of Netflix (NFLX) will also play a factor.
- Related stocks: CBS, DIS, AMCX, TWX, CMCSA, FOXA, SNI, MSG, DISCA
Dec. 4, 2013, 4:49 PM| 8 Comments
Dec. 4, 2013, 9:52 AM
- Higher spending on programming by network owners is paying off immediately in the form of increased revenue from content, according to media analysts.
- The most recent round of reports from Time Warner (TWX -0.4%), CBS (CBS +0.4%), Viacom (VIAB -0.4%), and 21st Century Fox (FOXA -0.8%) show higher program costs were offset by licensing and advertising revenue. Even big sports rights deals from Disney (DIS -0.7%) and NBC (CMCSA) appear to be adding enough profits to justify the steep costs.
- What to watch: A breaking point on programming costs could be seen in the future with the Pay-TV industry (DISH, DTV, CHTR, CVC, TWC) dabbling with smaller bundles for consumers.
- Related ETF: PBS.
Dec. 4, 2013, 6:49 AM
Dec. 2, 2013, 8:19 AM
- A massive deal by Rogers Communications (RCI) to buy the rights to broadcast NHL hockey in Canada is tied to preventing cord-cutting, according to industry watchers.
- Analysts call the move by the company a "reasonably priced" insurance policy against long-term cash flow erosion.
- In the U.S., ESPN's NFL and college football packages have helped prop up carriage fees for Disney (DIS) - but haven't stemmed subscriber losses for Pay-TV operator's (CHTR, TWC, CVC, DISH, DTV).
- Still, live sports programming is seen as critical to keeping the bundled network model in place for the industry and future sports rights bidding could go sky-high.
- Previous on cord-cutting: Subscriber losses in the U.S.
Nov. 29, 2013, 8:41 AM
- Disney's (DIS) Frozen is on course to bring in over $80M for its five-day opening weekend - a stellar mark if it holds that would beat estimates.
- The animated 3D film also earned a A+ rating from CinemaScore indicating it could have some sturdy box office legs right into VOD/streaming.
- Hunger Games: Catching Fire isn't showing any slowdown in momentum as the Lions Gate film has already toppled the $200M level for box office receipts and is forecast to do another $90M-$100M for the extended Thanksgiving weekend.
- Disney's Thor: The Dark World and Homefront (RGC) run 3rd and 4th for the weekend box office rankings with more moderate sales due to the significant crowding-out effect of the two powerhouse leaders.
Nov. 27, 2013, 1:39 PM
- Aided by blockbusters such as Monsters University and Iron Man 3, Disney's (DIS -0.9%) studio ops have seen over $4B in annual ticket sales for the first time in their history.
- Disney's Studio Entertainment division had Sep. quarter revenue of $1.51B, +7% Y/Y and equal to 13% of the media giant's total revenue. Op. income rose 35% to $108M.
Nov. 26, 2013, 2:20 PM
- UBS raises its assumptions on buybacks from Disney (DIS +2%) after factoring in the timing of sports rights costs.
- The investment firms sees buybacks for $7.0B and $7.5B in 2014 and 2015, respectively, after initially pegging the repurchase activity at $6B for each period.
- Also: Channel checks on Walt Disney World resort pricing and the upcoming Frozen movie look positive.
Nov. 25, 2013, 4:03 PM
- The most popular shorts according to Goldman's Hedge Fund Monitor which analyzes the positions of 783 funds with $1.6T in assets (in reverse order, i.e. the last in this list is the most heavily shorted): SYY, KO, TGT, BMY, SNDK, UPS, SLB, GE, CVX, PFE, CAT, COP, EMC, PG, NFLX, WMT, JNJ, DIS, CRM, VZ, IBM, XOM, T, GILD, INTC.
- A quick scan finds Netflix making both the top 25 list of most heavily shorted and the top 20 list of most concentrated longs. List of 20 longs is here.
Nov. 25, 2013, 1:05 PM
- For the first time in over five years, Disney's (DIS -0.2%) time-share business has been singled out by executives as a driver of growth for the company's Parks and Resorts segment.
- Vacation Club has suffered from a few management misfires of late, but once churned up over $190M in annual profits.
- What to watch: As anyone who has scratched out a few numbers on a napkin on the timeshare business can attest, Disney's timeshare business could lead to lush profits if demand improves.
Nov. 24, 2013, 9:30 AM
- Early estimates on the box office haul of The Hunger Games: Catching Fire indicate the film earned $152M-$160M in the U.S. over the weekend to set a November record and land as the 8th highest opening of all-time.
- Inside the numbers: Global audiences bring the weekend tally for the Lions Gate (LGF) film to well over $200M with many key markets still on tap. IMAX (IMAX) revenue totals aren't out yet, but anecdotal reports suggest a high percentage of filmgoers went the IMAX route. Males got caught in the Catching Fire buzz, jumping to 41% of the audience component from 29% for the original HG. CinemaScore gave the film a coveted A rating for tracking appeal which shows the juggernaut could have sturdy legs right into streaming.
- What to watch: The brisk opening brings a sigh of relief across the industry. Shares of LGF and IMAX broke higher Friday off the early buzz - but could show even more friskiness. Theater operators (CKEC, CNK, RGC, MCS, RDI) needed the reassurance that the Instagram-teenager set can still deliver high traffic numbers, while Hollywood studios have been in the crossfires of analysts for their reliance on make-or-break tent-pole strategies. Disney (DIS) with the biggest tentpole of all in its back pocket with the Star Wars franchise will take a few cues. Get cracking J.J. Abrams.
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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