Analysts' Choice: Try Living In Disney's World

4/25/2016


  Recent Price
$103
  Dividend
$1.42
  Yield
1.4%
  P/E Ratio
19
  Shares (millions)
1,668
  Long-Term Debt As % Of Capital
21%
  52-Week Price Range
$122.08 - $86.25

Just as Apple ($107; AAPL) controls the premier ecosystem for personal computing, Disney ($103; DIS) has assembled an unrivaled entertainment ecosystem. Through a series of deals, Disney has merged the intellectual property of Pixar, Lucasfilm, and Marvel with its own legacy films and characters. Fans of the movies can buy related toys and merchandise, and visit theme parks to immerse themselves further in the fictional worlds — all without straying from the Disney umbrella.

Disney is a Long-Term Buy.

Primed for growth

Disney shares have declined 2% so far in 2016. Yet analyst profit estimates for Disney have drifted higher in the past 90 days, while estimates for most S&P 500 Index companies are trending lower. The consensus calls for Disney's per-share profits to rise 6% for the 12 months ending December, modestly above the average of 5% for S&P 500 components.

The stock also enjoys superior operating momentum, with earnings per share surging 21% in the last 12 months on 9% higher revenue.

Disney's studio unit (14% of sales in fiscal 2015 ended September, 13% of operating income) has produced a string of hit movies, including Star Wars: The Force Awakens, Zootopia, and The Jungle Book. The success of its films supports demand for merchandise tie-ins offered by Disney's consumer-products business (9%, 12%). Consumer products helped drive growth in 2015, as sales rose 13% and income 29%; momentum carried over into the December quarter, with sales up 8% and income 20%.

Attendance at Disney's resorts and theme parks (31%, 21%) rose 5% in fiscal 2015, followed by 6% growth in the December quarter. Trends at U.S. theme parks are so strong that Disney was able to raise its ticket prices. Shanghai Disney should open in June.

Concerns weighing on the cable business (23% of sales, 46% of operating income) probably won't lift any time soon. ESPN's subscriber base has fallen 8% from its 2010 peak, while Lifetime and A&E have also shed subscribers in recent years. In addition, rising programming costs have squeezed profitability. Somewhat encouragingly, the pace of subscriber losses slowed to 2% in the December quarter, versus 3% in fiscal 2015 ended September.

Conclusion

Shares trade at 19 times trailing earnings, near their lowest level in three years. Some analysts contend that Disney's P/E ratio has contracted because cable generates a smaller portion of the company's profits (46% of income in fiscal 2015, versus 56% in fiscal 2013). As the argument goes, cable's relatively stable, subscription-driven cash stream should merit a premium to the fast-growing studio business, which can post volatile results because of its dependence on blockbusters. However, Disney's studio is backed by several strong franchises with built-in audiences. With Disney's busy slate of forthcoming sequels, its studio could achieve the predictability of its cable business.

An annual report for The Walt Disney Co. can be obtained 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
Dec '15
1.63
vs.
1.27
14%
120.65
-
99.88
23 - 19
Sep '15
1.20
vs.
0.89
9%
122.08
-
90.00
25 - 19
Jun '15
1.45
vs.
1.28
5%
115.28
-
104.25
25 - 22
Mar '15
1.23
vs.
1.08
7%
108.94
-
90.06
24 - 20
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2015
52.47
5.15
1.81
122.08
-
78.54
24 - 15
2014
48.81
4.32
0.86
91.20
-
63.10
21 - 15
2013
45.04
3.38
0.75
67.89
-
46.53
20 - 14
2012
42.28
3.13
0.60
53.40
-
28.19
17 - 9
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
84
85
54
94
90
62
26

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


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