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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.
Thu, Jul. 17, 9:25 AM| 3 Comments
Wed, Jul. 16, 1:29 PM
- Though Time Warner (TWX +16.7%) CEO Jeffrey Bewkes posted a video on the company's blog in which he resoundingly rejects the offer from 21st Century Fox (FOXA -3.5%), there's a line of though amongst media analysts that the response is part of choreographed song-and-dance.
- Deadline.com notes former Murdoch confidante Gary Ginsberg is now a top lieutenant for Bewkes and could be the key man in brokering a deal.
- Ripple#1: A combination of the two companies could light a fire under M&A activity in the media sector between content producers (DISCA, LGF, AMCX, SNI, VIA, VIAB) and tech heavyweights such as Google, Apple, or Sony which haven't pulled the trigger yet on a mega-content deal.
- Ripple #2: Two companies in the cross-hairs of a TWX-FOXA combination are Disney (DIS -1%) which could see ESPN lose a little bit of leverage with TNT and TBS linked with Fox Sports and Netflix (NFLX -1%) where a challenge from HBO in more global markets would be likely.
Wed, Jul. 16, 8:13 AM
- 21st Century Fox (NASDAQ:FOXA) will pay as much as $85 per share for Time Warner (NYSE:TWX), according to Bloomberg.
- The frothy premium hasn't gone unnoticed in the broadcaster sector with CBS (NYSE:CBS) up 1.6% premarket and Viacom (VIA, VIAB) rising 1.8%. Murdoch's 21st Century Fox is 1.7% higher, while even media giants Disney (NYSE:DIS) and Comcast (NASDAQ:CMCSA) are catching a piece of the frenzy, up 0.7% and 0.9% premarket, respectively.
- TWX is in dreamland, up +20.2% to $85.32.
- It's setting up to be a banner day for the PowerShares Dynamic Media ETF (NYSEARCA:PBS).
Tue, Jul. 15, 7:44 AM
- The NBA wants to double the amount of money it earns for the TV rights to its games when its contract with networks comes due at the end of this season.
- ABC/ESPN (NYSE:DIS) and Turner Broadcasting (NYSE:TWX) pay $485M and $445M a year respectively under the current contract.
- New bidders could emerge if a deal isn't worked out with the NBA by a preset date.
Mon, Jul. 14, 1:48 PM
- DirecTV (DTV -0.1%) won't play hardball with ESPN over contract negotiations for the new SEC Network, according to TVPredictions.com
- Though the satellite company has notably dug in its heels over carriage fees with other regional sports networks, DirecTV needs to keep a good relationship with Disney (DIS +0.1%) intact as it eyes launching a new online TV service sometime in the future.
Mon, Jul. 14, 10:42 AM
- Fresh research from Annalect indicates more than a third of binge-viewing TV watchers would agree to watch some ads if it meant they could score lower subscription rates.
- In an interesting twist, binge viewers end up discussing with friends and family the ads they do see at a higher rate than normal viewers.
- What to watch: Streaming services such as Netflix (NASDAQ:NFLX), Hulu, and Amazon (NASDAQ:AMZN) are still trying to define how advertising can be part of their model, with dynamic ads tapped to be an effective way to increase relevancy and conversion rates. On the content side, major networks (CBS, DIS, CMCSA, FOXA) want to move to a C7 system (7-day window) of counting ads from C3 in order to capture VOD, streaming, and DVR viewers.
Fri, Jul. 11, 12:02 PM
- Disney (DIS -0.5%) says it improved its upfront advertising for Disney Channels (Disney Channel, Disney XD, Disney Junior) by 35% this year.
- The company pushed for deals earlier in a move that could squeeze out competitors with the overall U.S. kids TV advertising market expected to show flat growth.
Fri, Jul. 11, 10:14 AM
- The Department of Justice has asked CBS (CBS +0.2%), Disney (DIS -0.2%), and Discover Communications (DISCA +0.2%) to weigh in on the proposed merger between Comcast (CMCSA -0.2%) and Time Warner Cable (TWC -0.2%).
- Presumably, the media companies expressed concern over NBCUniversal receiving preferential treatment if the deal is approved.
- Netflix (NFLX +1%) and Dish Network (DISH +0.4%) are already on record as opposing the deal.
Wed, Jul. 9, 12:51 PM
- Disney's (DIS +0.9%) sell-through of movies on iTunes in Japan was halted for about a day amid a short-term negotiating dispute.
- Apple presumably had some decent leverage on Disney with sales (pre-orders) of Frozen soaring in Japan, though Disney execs deny an impact.
- Disputes between Apple and Disney have tended to be minor with the companies having a close relationship on various fronts.
Wed, Jul. 9, 8:42 AM
- Select media stocks could see some volatility this week with the Allen & Co. Conference in Sun Valley, Idaho expected to get some M&A rumors kickstarted.
- This year's affair arrives with two mega-mergers (AT&T-DirecTV and Comcast-Time Warner Cable) looming large in the industry, and in a development which bodes well for content owners, will be attended by tech heavyweights such as Facebook's Sheryl Sandberg, Netflix's (NFLX) Reed Hastings, and Twitter's Dick Costolo.
- The eclectic mix also includes Warren Buffett and NBA commissioner Adam Silver who will chat up media execs with the NBA TV contract up for bid soon.
- Analysts expect the Allen conference to be high on stock-moving rumors, but light on binding deals.
- Rumored deals: A Discovery Communications (DISCA)-Scripps Networks Interactive (SNI) merger; Verizon (VZ) taking a run at Hulu (DIS, CMCSA, FOXA); 21st Century Fox (FOXA) offering a hefty premium for Time Warner (TWX).
- Related ETF: PBS
Wed, Jul. 2, 12:49 PM
- Pay-TV operators (DISH, DTV, CHTR, CVC, TWC) will have to spend about $18.32 a month per subscriber within wo years to gain broad rights to sports content, according to estimates from SNL Kagan. That figure makes it difficult for the group to offer smaller bundles to bring back cord-cutters and lure cord-nevers.
- The major sports broadcasters (DIS, TWX, FOXA, CMCSA, CBS) only earned about $1.17 a month in 1995, despite lacking any competition from streaming or online services.
- Though the AT&T-DirecTV and Comcast-Time Warner Cable mergers could add leverage to the pay-TV side, new sports channels Fox Sport 1 and NBC Sports Network aim to achieve the must-have clout and high carriage fees earned by ESPN.
- Passing on costs might not be an option: Average revenue per user at pay-TV operators has hit a tipping point with consumers, with most analysts seeing the push-back continuing.
- "Something has to give," sums up media analyst Craig Moffett.
Fri, Jun. 27, 2:56 PM
- ESPN (DIS +0.1%) logged an all-time high of 3.2M live unique visitors to its streaming service WatchESPN during yesterday's World Cup game, and saw a 10% hike in its TV audience.
- The game also generated WatchESPN's best figures for concurrent viewers at 1.7M, and total minutes watched for one event at 143M.
- Thus far for the matches, WatchESPN is averaging 737K unique viewers and 3.1M total minutes watched per game.
- Previously: Smashing World Cup ratings for ESPN and Univision
Wed, Jun. 25, 10:21 AM
- Handing a major win to TV broadcasters, the Supreme Court has ruled 6-3 Aereo's streaming TV service violates the Copyright Act.
- Aereo has maintained an unfavorable ruling would be a death knell for the company. Broadcasters, meanwhile, had threatened to stop providing their channels over the air, as they looked to protect the lucrative affiliate fees they receive from pay-TV providers.
- Broadcaster shares have moved higher following the verdict: CBS +5.4%. DIS +1.4%. FOX +2%. FOXA +1.9%. CMCSA +0.9%. InterActiveCorp (IACI -1.6%), a major Aereo investor, is trading lower.
- Prior Aereo coverage
Tue, Jun. 24, 3:15 PM
- Morgan Stanley digs deep into Disney's (DIS -0.3%) projected earnings before trimming a few cents off of its FQ3 estimate, $1.13 vs. $1.16 MS prior, $1.16 Street consensus, and $1.21 on Estimize.
- The investment firm sees a big boost from Frozen to profit at the Consumer Products and Studio Entertainment segments, but thinks lower deferred revenue recognition at ESPN will work in the opposite direction.
- Though the lasting impact of Frozen will be a big topic in Disney's earnings release, MS reminds that last year's quarter was nearly as robust with both Iron Man 3 and Monster University contributing.
Tue, Jun. 24, 2:42 PM
- NBCUniversal (CMCSA) has lined up as much as $2.5B in fall prime-time ad commitments, according to Variety.
- That mark would be well-ahead of the $2B hauled in by the broadcaster last year.
- Media insiders think ABC (DIS) and CBS (CBS) took in less money this year than last, although CBS probably secured the best rates of the bunch.
Tue, Jun. 24, 1:23 PM
- ABC News launches a new Apple TV channel today which will make on-demand content available to consumers.
- The channel will feature local content and live video along with archived ABC footage.
- The deal makes another step forward in the growing content relationship between Apple and Disney (DIS +0.3%).
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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