Don't Sweat The Small Stuff At Disney

| About: The Walt (DIS)
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Summary

Analysts like pounding the table for Disney on events like its Shanghai theme park.

Such events are actually negative for the stock. It lost value during the Star Wars launch.

Overall, these news events mean very little. Disney is a steady-as-she goes earner.

With the opening of Disneyland Shanghai analysts are once again pounding the table for Disney (NYSE:DIS) stock.

Jing Pan at Profit Confidential sees a "super spike" coming. Investor Place notes that the resort is already expanding. Nomura has put a $115 price target on the shares.

The argument is that in-country tourism is booming across China, Shanghai Disney is a premier destination, and thus results can't be anything but fantastic. Analysts are predicting 50 million visitors over the next year, which could add a minimum of $7.5 billion to revenues, taking the top line to $60 billion all by itself.

Disney revenues have been growing roughly $4 billion/year over the last few years, almost 10%, with operating margins also rising to about 25%. Despite the expenses of building the park, long-term debt has barely budged, and operating cash flow has been averaging $10 billion/year.

Yet the stock has gone nowhere. Since this time last year, it's actually down. The release of the first new "Star Wars" movie sent the shares plummeting, from $120 late in November to less than $90 in February. (Note that the optimistic Nomura price target is still $5/share less than that November high.) I'm certain that just as the Shanghai numbers will be pulling it upward, the death of a child from an alligator attack in Florida will bring out the bears.

The main reason for pessimism is ESPN, which continues to bleed subscribers even while rival networks hike programming costs on live events. The network is relying a lot on news and talk shows to make up for the loss of these events to Fox (NASDAQ:FOX), Turner (NYSE:TWX) and NBC SN (NASDAQ:CMCSA), but that's just making the subscriber losses worse, and the rivals are now stealing talent as well.

CEO Bob Iger insists there is nothing to worry about. Disney is working to get the channel into the new "skinny bundles" from Dish (NASDAQ:DISH) and Sony (NYSE:SNE) PlayStation Vue, and onto platforms like Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Play. He made a big push for the channel's future at the May "upfronts," where TV networks go each year to win ad commitments for new fall programming.

In fact, the subscriber losses aren't huge, from 98 million to 92 million. The problem is that those rising costs mean skinny profits, and that in past years, ESPN has been seen as the main profit driver for the whole company.

The bottom line is that while the success of various elements in the pile fluctuate - TV, movies, theme parks, cable networks - the whole ship is on an even keel, and moving steadily forward. Disney has a market-matching Price/Earnings multiple of 18, profits rising an average of 10%/year, and the stock has an average annual growth rate over the last 10 years of over 23%. The stock fell 50% during the last market crash, but even if you picked it up near that market's top, in 2008, you have since nearly tripled your money and enjoyed a doubling of the dividend.

In other words, Disney is not nearly as exciting, in either a positive or negative way, as analysts and investors here at Seeking Alpha like to make out. It's a good, steady, earning stock, the kind you can stick in a kid's college fund and feel confident about.

Don't sweat the small stuff on Disney and remember it's all small stuff.

Disclosure: I am/we are long DIS, GOOGL, CMCSA.

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.