The Walt Disney Company: The Only Mega Cap With A Perfect Piotroski F-Score

| About: The Walt (DIS)

There are currently 163 stocks in our database with a market cap greater than 50 billion. Out of the 163 stocks only one has a Perfect Piotroski F-Score of 9, and that stock is the Walt Disney Company (NYSE:DIS). The Walt Disney Company, according to Google Finance, "is a diversified worldwide entertainment company. The Company operates in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. "Along with a perfect Piotroski score, DIS also shows a lot of strength in many other areas in its fundamentals and technicals.

What is the Piotroski F-Score and why does it matter?

The Piotroski F-Score is a score from 0 to 9 that measures overall fundamental health of a company. It is calculated by awarding one point for each of 9 conditions that the stock passes. The conditions are as follows:

  1. Most recent Yearly Net Income > 0​
  2. Yearly Cash Flow from Operations > 0
  3. ROA has increased year over year
  4. Cash Flow from Operations > Net Income
  5. Long-term Debt to Assets has decrease year over year
  6. Current Ratio has increased year over year
  7. No new shares were issued in the last year
  8. Gross Margin has increased year over year
  9. Asset turnover has increased year over year

At this point of the article you are probably thinking what we initially thought which was "why does this indicator matter when picking stocks?" In order to answer that question we backtested stocks in Equities Lab with high F-Score and low F-Scores then compared the performance. What we found is that stocks with higher F-Scores significantly outperformed stocks with low F-Scores on average.

The graph above is the backtest results of stocks with perfect scores of 9 out of 9. The green line represents the portfolio return if you would have bought stocks when they had a perfect score of 9 and sold them when the score dropped to below 9. For a longer explanation of how our backtest works please visit this page. The dark blue line represents the return of the Russell 200 and the grey line represents the return on SPDR S&P 500 ETF Trust (NYSEARCA:SPY). The turquoise line represents the average market cap of the stocks that passed the strategy at any given time. The strategy returns a 19.83% annualized return while SPY, which is an accurate representation of the stock market as a whole, returns 6.47% annualized between Jan. 3, 2003 to Feb. 14, 2014.

The graph above represents the year-by-year breakdown of the backtest. As you can see the strategy outperforms the market in an impressive 11 out of 11 years the back test covers. The graph below represents the back test results of stocks (excluding financial stocks) with a horrible F-Score of 0.

The lines on this graph represent the same thing as they did on the previous graph except the turquoise line is now the average debt to assets ratio of the stocks that passed the strategy at any given time. As you can see the average is very high and consistently over 100. The back-test return of this strategy, which locates very low F-Score stocks, is 2.42% annualized. The difference in performance between stocks with scores of 9 (19.83% annualized) and scores of 0 (2.42% annualized) is huge. This huge difference is the main reason why we are so confident in the Piotroski Score indicator.

The fact that DIS is the only company out of 163 with a market cap greater than 50 billion to have a perfect Piotroski score is definitely worth noting.

Other impressive fundamental happenings going on with DIS

The Piotroski score is far from the only reason we are bullish on The Walt Disney Company. Other reasons include:

1. DIS is not overvalued; in fact it is undervalued. The table below makes a case that Disney is undervalued by over 20%. (Data from AAII)

The Walt Disney Company

Avg. of Mkt. Cap > $100 bil.

(not including Financial Stocks)

Price to Sales






Sales Growth T12M



Price to Book



Est. 5 yr. Growth Rate



As you can see Disney has a slightly lower price to sales, a much lower PE, a higher sales growth trailing 12 months, a much lower price to book, and a much higher analyst expected 5 year growth rate than the average of companies with a market cap greater than 100 billion and not including financial stocks. I would make the case that Disney should be trading at a higher PE than the average since it has experienced above average sales growth and has well above average expected 5 year growth. I don't want to get too aggressive with the next statement, but I think that I can safely state that DIS is undervalued by 20%.

2. Analysts have been aggressively increasing their EPS estimates and 5 year growth rate estimates on DIS over the past month as displayed in the table below:

3. A look at the current assets and liabilities compared to last quarter and 5 quarters ago shows Walt Disney's balance sheet getting much stronger as of late.

In the assets summary we see that the cash balance has increased 37% since 5 quarters ago and 12% since last quarter. In the liabilities summary we see that long term debt has decreased over 8% since last quarter. Also, over the past quarter we have seen shares outstanding decrease 5.6% from 1800 to 1700, which indicates they have been buying back shares.

4. DIS has a solid history of Dividend increases (represented in the table below). DIS has been significantly increasing their dividend over the past 3 years while maintaining a low payout ratio. During the massive recession in 2008, DIS did not decrease its dividend like many other companies.



% Increase

Payout Ratio



14.7 %




25 %




71.4 %




14.3 %














The screenshot above shows the year by year performance of DIS and the S&P 500. Out of the 12 years this graph covers, DIS outperforms the market in 9 of them. In 2014, DIS is off to a great start; it is up about 3.3% while the S&P 500 is down 1%.


There are a number of reasons why we are bullish and long on The Walt Disney Company. Those reasons include: DIS is the only company with a market cap greater than 50 billion to have a perfect Piotroski F-Score of 9, DIS could be undervalued by over 20% according to key valuation ratios and growth rates, analysts have been significantly revising their EPS estimates and estimated growth rates upwards over the past month, the balance sheet is becoming stronger over the past year, the company has a solid history of dividend increases while maintaining a low payout ratio, and the technicals show that DIS consistently out-performs the market. Taking everything into consideration we highly recommend DIS as a very solid long-term buy with a lot of upside room.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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