Analysts' Choice: A Bigger, Better Enchanted Kingdom

7/10/2017


  Recent Price
$106
  Dividend
$1.56
  Yield
1.5%
  P/E Ratio
18
  Shares (millions)
1,591
  Long-Term Debt as % of Capital
26%
  52-Week Price Range
$116.10 - $90.32

What started as a kingdom has expanded into a truly global empire. Disney ($106; DIS) has combined its movies, theme parks, broadcast networks, and consumer products into an information and entertainment ecosystem that generates consistent growth.

In the last five years, Disney has grown sales at an annualized rate of 6%, while per-share profits increased at a 16% clip. The consensus projects sales growth of 2% and per-share-profit growth of 4% in fiscal 2017 ending September, followed by growth of 6% and 14%, respectively, in fiscal 2018. While this year's growth target doesn't sound impressive, you can blame much of that on the seventh Star Wars movie, which juiced results last year. Another megahit film would render today's estimates conservative, though Disney seems capable of exceeding modest expectations for the next few quarters even without such a lift.

Disney, trading at a discount of 5% to its five-year average price/earnings ratio, earns a Long-Term Buy rating.

The Disney magic

Much of Disney's consistent success revolves around its ability to make each business unit drive growth at the others.

This company parlays its blockbuster films into franchises that sell toys, video games, and books. Eventually, the most successful films support themed areas in Disney's amusement parks, while they and other media derivatives air on Disney's television networks, which in turn promote the various businesses.

Television (43% of revenue, 49% of earnings before interest and taxes in fiscal 2016 ended September) remains Disney's biggest business. The media unit posted flat sales and 3% lower profits in the six months ended March, hurt by ESPN, which wrestles with both subscriber losses and higher programming costs.

Not surprisingly, given the Star Wars comparison, the movie unit (17%, 17%) saw lower sales and profits in the six months ended March. Because of the relatively small number of projects and their massive potential, this business has a history of lumpy results. As of June 25, Disney's movies have combined to generate box-office receipts of more than $1.3 billion in the U.S. and $3 billion globally so far this year. The $1.3 billion equates to nearly one-fourth of all the money spent on movie tickets in this country. Later this year, Disney is expected to release a superhero movie focused on Thor and another Star Wars film.

Fortunately, theme parks and resorts (30% of sales, 21% of profits) offset other units' weakness, delivering growth of 8% in sales and 16% in profits in the first six months of fiscal 2017, helped in part by a stronger-than-expected showing for the first year of a park in Shanghai. Consumer products (10%, 13%) round out Disney's revenue stream.

Conclusion

After generations spent building a cast of memorable movie and TV characters, the Disney brand is ranked eighth most powerful in the minds of consumers, according to Forbes, above such stalwarts as Coca-Cola, GE, and Toyota. You can obtain an annual report for The Walt Disney Co. at 500 S. Buena Vista St., Burbank, CA 91521, (818) 560-1000, www.disney.com.

DISNEY
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '17
1.50
vs.
1.36
3%
113.71
-
105.21
20 - 19
Dec '16
1.55
vs.
1.63
-3%
106.26
-
90.32
19 - 16
Sep '16
1.10
vs.
1.20
-3%
100.80
-
91.19
17 - 16
Jun '16
1.62
vs.
1.45
9%
106.75
-
94.00
19 - 17
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
55.63
5.72
1.42
120.65
-
86.25
21 - 15
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
3.39
0.75
67.89
-
46.53
20 - 14
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
61
31
69
91
74
11
29

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


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