Investors have been very happy with the House of Mouse lately. On Tuesday, Disney (NYSE:DIS) announced earnings that crushed estimates. Thanks to a large boost from the sale of Frozen merchandise, Disney posted an 8.8% increase in revenue and a 18.5% increase in net income.
The stock reached new highs after the announcement, but based on a comparative analysis and the projects Disney has coming to fruition in 2015, the stock still seems to be fairly valued.
I have to start by saying it is very difficult to compare Disney to other companies. Disney is a media and entertainment giant with its five distinct business segments, and no other company really has this kind of diversity. The closest comparison would probably be Comcast (NASDAQ:CMCSA) given that it owns NBC Universal, but Disney and Comcast still have significant differences since Comcast's cable operations constitute a significant portion of its business.
The two other companies that were used in this comparison were Twenty-First Century Fox (NASDAQ:FOXA) and Time Warner (NYSE:TWX). These companies share similarities to Disney with regards to their entertainment and media components, but Disney far surpasses them in size. Disney has a market cap of around $160 billion while Twenty-First Century Fox and Time Warner have market caps of around $70 billion and $67 billion.
Despite this lack of "pure competitors", we still can get some ideas about Disney's current valuation. Disney's stock jumped around 8% after releasing earnings and it now has a P/E ratio of about 24. This is greater than the P/E ratios of Comcast, Twenty-First Century Fox, and Time Warner who all have P/E ratios below 20. This makes Disney seem overvalued compared to its competitors, but when you compare the companies' valuations based on their EBITDA (Earnings before Interest, Tax, Depreciation, and Amortization), Disney actually looks pretty fairly valued at this higher price.
When looking at the companies' valuations in light of EBITDA, Comcast is the most undervalued with its enterprise value sitting about 15.5 times greater than its EBITDA. On the other hand, the valuations of Twenty-First Century Fox and Time Warner are both on the higher end since their enterprise values are about 25 times greater.
Since Disney has both its differences and similarities with these competitors, I believe a fair multiple for Disney's value would be about 18 times its EBITDA. This would place Disney's equity value at about $183 billion, or $107.50 per share, which is around 1% above Disney's current valuation.
Some investors may fear that Disney's stock has gone too far, too fast. However, it still seems that Disney's stock is in a good position. Disney has plenty of growth opportunities to keep moving the company forward and it has the fundamentals to back the company up. So despite the stock's run-up this week, Disney investors seem to still be in a good position. Let's just hope that Mickey and the gang can keep the momentum going.
Disclosure: The author is long DIS.