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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.
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.
Wed, Oct. 8, 9:23 AM
- Disney (NYSE:DIS) is mentioned during J.C. Penney's (NYSE:JCP) Analyst Day presentation as a bright spot for the retailer.
- The Disney shops within JCP stores have become a "huge attraction" with demand for Frozen-related products driving traffic.
- Another 116 JCP locations will see Disney shops added to take the total count to 680.
- JCP Analyst Day webcast
- Previous coverage of J.C. Penney Analyst Day
Wed, Oct. 8, 8:15 AM
- Viacom (VIA, VIAB) is playing hardball with regulators in Canada with a threat to move its networks online if an a la carte sytem is mandated.
- The Canadian government has been making quite a bit of noise over forcing a la carte on the pay-TV industry.
- A+E Networks (DIS, Hearst) has also warned that it will explore strategic options if a pick-and-pay TV environment is established in the nation.
Wed, Oct. 8, 7:22 AM
- Hulu (DIS, CMCSA, FOXA) CEO Mike Hopkins is mulling over reducing the numbers of advertisements that run on Hulu Plus, according to the New York Post.
- Data from comScore indicated Hulu showed 250% more ads than what was seen on YouTube and other Google properties during a tracking period.
- The ongoing shift of ad dollars from TV to online channels still benefits Hulu even with a lower ad count.
Tue, Oct. 7, 1:22 PM
- Consumers will end paying for the "reckless spending" of major networks for sports coverage rights, warns Mediacom's Tom Larsen.
- Earlier this week, ESPN (NYSE:DIS) and TNT (NYSE:TWX) signed 9-year contracts which will triple the amount they spend for NBA rights.
- Though the added costs won't start piling up until the 2015-2016 NBA season ends, some media analysts think a bubble has been built up on sports licensing costs that could burst before then.
- The pay-TV sector could suffer if consumers hit the wall on rising monthly TV bills.
- Related stocks: DISH, DTV, CHTR, TWC, CMCSA, CVC.
Mon, Oct. 6, 10:45 AM
- ESPN's new deal with the NBA will let it experiment with selling online access to "out of market" games outside of the traditional pay-TV bundle.
- Though the initiative could take several years to take form, it will mark another small step toward a la carte programming for consumers.
- Media analysts note the length of the contract between the NBA with Disney (DIS +0.7%) and Time Warner (TWX) effectively boxes out Fox (NASDAQ:FOXA) and NBC (NASDAQ:CMCSA) until past the 2024-2025 season.
- On the pay-TV side, operators such as Comcast, Dish Network (NASDAQ:DISH), AT&T (NYSE:T), Cablevision (NYSE:CVC), Time Warner Cable (NYSE:TWC) and DirecTV (NASDAQ:DTV) have to fret over an online product competing with their sports packages which include NBA games.
Mon, Oct. 6, 4:02 AM
- Euro Disney (OTCPK:EUDSF) has agreed to a €1B funding deal backed by its largest shareholder, Walt Disney (NYSE:DIS).
- The plan includes a rights issue of €420M open to all shareholders and backed by Walt Disney. The move would improve the cash position of Euro Disney by about €250M.
- In addition, about €600M of the group's debt owed to Walt Disney will be converted into equity, while credit lines extended to Euro Disney by its parent will be consolidated.
Mon, Oct. 6, 2:00 AM
- The National Basketball Association has reached long-term media rights contracts with Walt Disney (NYSE:DIS) and Time Warner's (NYSE:TWX) Turner Broadcasting, which more than doubles the current $485M and $445M fees the companies pay annually.
- The league also plans to partner with ESPN for a new online video service that would show live regular season games.
- The contracts will give Disney and Turner the rights to NBA games through the 2024-25 season.
- Previously: Report: ESPN and TNT to lock up key NBA rights deals
Sun, Oct. 5, 8:55 PM
- The NBA is expected to make an announcement tomorrow that it will renew TV rights deals worth close to $2B with ESPN (NYSE:DIS) and TNT (NYSE:TWX).
- The development would end speculation that NBC Sports, Fox Sports, or an online TV player would win the coveted packages to replace the current contracts which expire in 2016.
- Variety reports the NBA contract is the last major sports league deal that ESPN will have to negotiate over the next several years.
Thu, Oct. 2, 2:07 PM
- Bob Iger, previously set to retire in June 2016, will remain Disney's (DIS -1.1%) chairman/CEO for two years longer, under the terms of a contract extension.
- The extension "maintains the same annual compensation terms" as Iger's existing deal, but includes "the opportunity to earn a performance-based retention bonus if certain financial performance goals are met over a five-year period ending with fiscal year 2018." Details will be provided in an 8-K tomorrow.
- As it is, there had been speculation Iger, 63, would stay on board beyond 2016.
Thu, Oct. 2, 9:28 AM
- A survey of consumers by RBC Capital Markets indicates viewership of network TV websites has fallen.
- YouTube, Netflix (NASDAQ:NFLX), and Amazon (NASDAQ:AMZN) scored a higher percentage of viewers from a year ago - while NBC (NASDAQ:CMCSA), ABC (NYSE:DIS), CBS (NYSE:CBS), and Fox (NASDAQ:FOXA) were all in decline over the period.
- HBO Go (NYSE:TWX) saw its percentage of users rise to 10% from 6%, while Hulu fell back.
- Secular TV ratings have also been in decline for networks.
Wed, Oct. 1, 9:55 AM
- Theme park stocks slide lower than market averages after a single case of Ebola in Dallas creates a talking point.
- Plenty of traders think the dip is providing a good entry point for names in the group off what they consider undue anxiety.
- Decliners: Disney (NYSE:DIS) -1.1%, Cedar Fair (NYSE:FUN) -0.6%, Six Flags (NYSE:SIX) -0.8%, SeaWorld (NYSE:SEAS) -1.1%.
Tue, Sep. 30, 11:17 PM| Comment!
Tue, Sep. 30, 1:17 PM
- The long-established window for feature films established between Hollywood studios and theater exhibitors will crack in a major fashion next summer when Netflix (NFLX +1.1%) and IMAX (IMAX +0.7%) jointly release a film online and through the large-screen IMAX format.
- Though media analysts think theater chains will continue to bristle over the game-changing initiative - and for now IMAX says it will let exhibitors control the films that run on IMAX screens - IMAX sits in a powerful position in the future if it wants to play hardball.
- "Netflix already changed the TV business in a very, very significant way. The movie business is teed up next," says BTIG's Rich Greenfield on the development.
- Netflix and Weinstein are collaborating on a number of projects, several of which could turn into straight-to-streaming feature films.
- What to watch: Hollywood studios (LGF, SNE, VIA, CMCSA, DIS) could be the ones to have the final say on if the feature film window model is adjusted.
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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