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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.
Fri, Oct. 31, 9:28 AM
- Disney theme parks operated by Oriental Land in Japan are in line for $4.5B in upgrades and expansion, according to Bloomberg.
- Disney (NYSE:DIS) receives license fees from the two parks earmarked for the investment - Tokyo Disneyland and Tokyo DisneySea.
- A large attraction based on the movie Frozen is part of the expansion plan at Tokyo Disneyland.
- Frozen is the 2nd highest grossing film ever in Japan.
Tue, Oct. 28, 2:57 PM
- Marvel announces during a live event that The Avengers 3 will be split into two movies with release dates set for May of 2018 and 2019.
- Execs also outlined a whole slate of superhero movies in the pipeline.
- Other Marvel releases: Captain America: Serpent Society (May 6, 2016), Doctor Strange (Nov. 4, 2016), Guardians of the Galaxy 2 (May 5, 2017), Thor: Ragnarok (July 27, 2017), Black Panther (Nov. 3, 2017), Captain Marvel (July 6, 2018), and Inhumans (Nov. 2, 2018).
- What to watch: Several of the premiere dates were moved up from the anticipated release windows, meaning Disney (NYSE:DIS) could see cash flow in slightly ahead of schedule.
Tue, Oct. 28, 12:44 PM
- Viacom (VIA, VIAB) says it will expand the amount of programming it offers on Hulu under the terms of a new deal.
- Series from Nickelodeon, Comedy Central, MTV, VH1, TVLand, Spike, BET, and Logo will all be added to Hulu over the coming weeks.
- Hulu is owned by Disney (NYSE:DIS), Comcast (NASDAQ:CMCSA), and 21st Century Fox (NASDAQ:FOXA).
Tue, Oct. 28, 10:45 AM
- ESPN (NYSE:DIS) reports that last night's broadcast of the Washington Redskins victory over the Dallas Cowboys delivered the highest rating for MNF since 2010.
- The ratings smash could take some of the steam out of the argument from media analysts that the MNF property has been watered down due to the busier sports programming schedule.
- ESPN commands the highest carriage fees from distributors in the business.
Fri, Oct. 24, 1:48 PM
- RBC is out with a forecast on which studios will make the most money in 2015 from selling off-network series to SVOD concerns such as Netflix (NASDAQ:NFLX), Amazon Prime (NASDAQ:AMZN), and Hulu.
- CBS Studios (NYSE:CBS) leads the pack at $179M, while Warner Bros. (NYSE:TWX) is expected to bring in $106M and Lion's Gate (NYSE:LGF) about $61M.
- Sony Pictures TV (NYSE:SNE), Fox (NASDAQ:FOXA), and ABC Studios (NYSE:DIS) are pegged to bring in $40M-$43M.
- The overall spend of the top three streamers on older series is expected to rise 31% to $6.8B next year.
Thu, Oct. 23, 11:00 AM
- Marvel Studios (NYSE:DIS) releases the trailer for Avengers: Age of Ultron after a leaked copy made the rounds online earlier this week.
- Expectations for the Avengers sequel are sky-high after the first film generated $1.519B globally to rank 3rd on the all-time box office list.
- The film debuts in the U.S. on May 1, 2015.
- Trailer (YouTube)
Mon, Oct. 20, 10:25 PM
- The top ten films in the U.S. grossed $115.4M over the weekend, up 27% from the same period a year ago.
- Sony's (NYSE:SNE) Fury was the top movie of the weekend with a $23.5M take, while 20th Century Fox's (NASDAQ:FOXA) Gone Girl impressed by taking in $17.8M in its third week at theaters. The David Fincher film crossed the $100M mark over the weekend vs. a production budget of $62M.
- YTD U.S. box office revenue -3.9% at $8.261B.
- Studio stocks: LGF, SNE, VIA, CMCSA, DIS.
- Movie exhibitor stocks: CKEC, CNK, RGC, MCS, RDI, AMC, IMAX.
Mon, Oct. 20, 3:06 PM
- Disney (DIS +2%) announces a late 2016 release window for animated feature Moana.
- The time slot is much earlier than expected for the debut of the Polynesian princess.
- The sizzling global success of Frozen could have something to do with the push by execs to get another Disney princess into the mainstream earlier.
Fri, Oct. 17, 2:26 PM
- Moody's calls the decision by CBS (CBS +2.3%) to move forward with a streaming service another step forward in the "transformation" of content delivery.
- The ratings agency thinks the product will be attractive to millennials and cord nevers, but is undermined a bit by not including NFL broadcasts.
- In an interesting pullout, Moody's predicts the service won't have a material impact on subscriber demand for SVOD concerns such as Netflix (NFLX -2.2%), Hulu, and Amazon Prime (NASDAQ:AMZN).
- Moody's also point out that content providers will have the ability to set restrictions on content delivery in order to maximize revenue streams. Disney's (DIS +2.6%) ESPN comes to mind.
Fri, Oct. 17, 11:05 AM
- It's a zero-sum game for doll sales as a sharp slide in Q3 Barbie sales for Mattel (MAT -1.1%) coincides with sizzling growth for dolls based on Disney's (DIS +2.6%) Frozen movie.
- Hasbro (HAS +0.4%) and Disney signed a doll pact in September, while Jakks Pacific (JAKK +1.1%) is also in the Frozen mix.
- Mattel is in danger of setting a 52-week low today with some retail analysts piling on a bit.
Thu, Oct. 16, 6:52 AM
Wed, Oct. 15, 11:32 AM
- Netflix (NFLX -2.6%) slid a little lower after Time Warner announced HBO would become a stand-alone service sometime in 2015.
- Though it isn't clear how much of HBO's programming will migrate over to the OTT product, the mention of the "international possibilities" of a streaming HBO is enough to catch the attention of Netflix watchers.
- The development also has implications for Hulu (DIS, CMCSA, FOXA) and Amazon (AMZN -1%) which could end us as delivery partners or direct streaming rivals, according to Re/code.
- Pay-TV operators (CHTR, CVC, DISH, DTV) are in a bit of a box by the plan and may choose to play hardball with HBO.
Wed, Oct. 15, 7:52 AM
- Lion's Gate (NYSE:LGF) exec Kevin Beggs delivered a little bit of a thunderbolt during his talk at the Mipcom media conference.
- Beggs says he see very few barriers to entry for more streaming services to pop up in the near future, perhaps even from a tech major.
- He notes that even a $5-$10/per month streaming service doesn't need a huge number of subscribers to break even.
- A host of streaming companies bidding on content could be a positive for Lion's Gate and other studios (VIA, VIAB, SNE, DIS, TWX).
Tue, Oct. 14, 3:46 PM
- ABC News (NYSE:DIS) had the rug pulled out from under it after a reporting error by Nielsen (NLSN +0.7%) was corrected to shift its evening newscast out of 1st place.
- Last week, ABC News was lauded for ending NBC's 263-week streak atop the nightly news ratings - but after the adjustment was made, NBC escaped with a narrow ratings win.
Fri, Oct. 10, 7:43 AM
- The top 40 cable channels have lost 3% of the subscribers over the last four years, according to data compiled by The Wall Street Journal.
- ESPN (NYSE:DIS), TNT (NYSE:TWX), Nickelodeon (NASDAQ:VIAB), USA (NASDAQ:CMCSA) and CNN all shed more than 3% of their subscribers as consumers sought smaller bundles.
- Basic plans with a trimmed list of channels account for 12% of all pay-TV subscriptions, up from a level of 8%-10% just a few years ago.
- Related stocks: DISH, DTV, CHTR, CVC.
Thu, Oct. 9, 1:16 PM
- Disney (DIS -2.6%) CEO Robert Iger sat down with reporters with Bloomberg for some quick Q&A (video).
- On Shanghai: Iger maintains the company will avoid the mistakes it made with Euro Disney. Disney Shanghai won't start out off with the mound of debt that its Paris park took on just to turn the lights on.
- On sports: The exec remains confident the enormous NBA rights contract signed recently by ESPN will provide enough value to customers to justify costs. ESPN's pro football ratings are said to have shown no ill effect from the player scandals in the league this year.
- On Star Wars: Iger says the franchise will be a bright spot for Disney. Filming in the U.K. is progressing on schedule.
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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