Disney Puts On A Growth Show

7/13/2015


  Recent Price
$115
  Dividend
$1.15
  Yield
1.0%
  P/E Ratio
25
  Shares (millions)
1,715
  Long-Term Debt As % Of Capital
20%
  52-Week Price Range
$117.10 - $78.54

In the past decade, Disney ($115; DIS) has bought Pixar ($7.4 billion), Marvel ($4 billion), and Lucasfilm ($4 billion). In doing so, Disney added to its cast of bankable characters that includes Mickey Mouse, Buzz Lightyear, Spider-Man, and Chewbacca.

For investors, the result is a remarkably steady track record.

• Per-share profits have risen by double-digits in 15 of the past 16 quarters.

• Sales have grown in 18 straight quarters.

• Operating cash flow has advanced in eight of the last nine quarters.

• Returns on assets, equity, and investment have marched higher.

Disney is a Long-Term Buy.

Business breakdown

For the 12 months ended March, Disney grew earnings per share 18%, sales 8%, and cash from operations 9%. An entertainment ecosystem of retail shops, merchandising partnerships, and theme parks lets Disney squeeze more out of popular franchises than rivals might. Its operations include:

Media networks (45% of revenue in the first half of fiscal 2015 ending September, 51% of operating income) operates broadcast and cable networks such as ABC, ESPN, Disney, and A&E, as well as other TV and radio stations. Disney also owns a 33% stake in Hulu, which streams TV shows online to about 9 million paid subscribers. The media unit's sales grew 12% in the first half of fiscal 2015.

Parks and resorts (30%, 20%) includes iconic theme parks in Florida, California, and Hawaii. The company owns stakes in Disney-themed resorts in Paris, Hong Kong, and Shanghai, while licensing a resort in Japan. It also operates a cruise line and sells vacation-ownership stakes.

Studio entertainment (14%, 14%) distributes films under the Disney, Pixar, Marvel, Touchstone, and Lucasfilm banners. For the current calendar year, Disney's U.S. box-office sales surpassed $1 billion at its fastest pace ever.

Consumer products (9%, 14%), one of Disney's most profitable units, drove growth in the first half of fiscal 2015, with sales up 17% and operating income up 40%. The business consists of merchandise licensing, book publishing, and retail stores.

Interactive (2%, 1%) includes video games and online advertising.
Disney has generated $19.78 billion in free cash flow over the past five years. In that time the company grew its dividend at least 14% a year and lowered its share count 13%.

Disney well worth the price

Disney shares trade at 25 times trailing earnings, 33% above their five-year average and 25% above the average for S&P 500 consumer-discretionary stocks.

The stock's valuation looks more reasonable based on growth forecasts, which call for per-share profits to climb 15% in the 12 months ending March, versus its sector average of 9% growth. Disney's P/E to long-term growth ratio (PEG) of 1.6 is roughly in line with the sector average. While Disney is far from cheap, the P/E premium makes sense for an industry leader tapping into numerous attractive growth markets.

Get an annual report for The Walt Disney Co. at 500 S. Buena Vista St., Burbank, CA 91521; (818) 560-1000; www.thewaltdisneycompany.com.

DISNEY
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '15
1.23
vs.
1.11
7%
108.94
-
90.06
24 - 20
Dec '14
1.27
vs.
1.01
9%
95.95
-
78.54
22 - 18
Sep '14
0.89
vs.
0.77
7%
91.20
-
84.87
22 - 20
Jun '14
1.28
vs.
1.03
8%
86.07
-
76.31
22 - 19
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
48.81
4.32
0.86
91.20
-
63.10
21 - 15
2013
45.04
3.39
0.75
67.89
-
46.53
20 - 14
2012
42.28
3.07
0.60
53.40
-
28.19
17 - 9
2011
40.09
2.54
0.40
44.34
-
29.05
17 - 11
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
86
76
31
92
78
92
86

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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