Is Disney Still a Winner?

With shares of The Walt Disney Company (NYSE:DIS) trading at around $59.14, is DIS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Disney has been one of the best long-term investments throughout the broader market. Those who say past stock performance doesn’t mean anything in regards to future potential for the stock hasn’t been paying attention to blue chips like Disney. History tends to repeat itself, which stems from management. And when it comes to management, it doesn’t get much better than Disney.

Here are some current positives for Disney:

  • Strong ad sales
  • Strong domestic resort reservations
  • Focus on investing in core business for long-term growth
  • Entered several content distribution agreements (more on this soon)
  • Strong performance in media networks
  • Management confident in ESPN’s future performance
  • Good cash flow
  • 1.30 percent dividend yield
  • Consistent buybacks

In regards to content distribution agreements, this includes Comcast Corporation (NASDAQ:CMCSA), Netflix (NASDAQ:NFLX), and Charter Communications (NASDAQ:CHTR). These agreements increase exposure for Disney. Many people think Disney has such a strong name that it simply relies on its current offerings in regards to theme parks, content, and more. However, that’s not even close to the truth. Winning companies are always looking to improve. Disney is one of those companies. The brand name simply provides a tremendous head start.

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For those who love Disney movies, there are some exciting releases coming up:

  • Iron Man 3
  • Monsters Inc. 2
  • The Lone Ranger
  • Planes

Of course, these movies are also likely to help the bottom line. The Iron Man franchise needs a boost after Iron Man 2’s mediocre performance. For example, Iron Man earned a 7.9 rating on IMDB whereas Iron Man 2 earned a 7.1 rating. Iron Man also has a 91 percent approval rating on Rotten Tomatoes whereas Iron Man 2 has a 75 percent rating. The good news is that 99 percent of Rotten Tomatoes members are interested in seeing Iron Man 3. In other words, there’s a lot of demand. If Monsters Inc. 2 is anywhere near as popular as the original, then Disney will have another monster hit on its hands. Nobody knows much about The Lone Ranger, but if it doesn’t pan out, then at least Disney will have Planes, which is a spinoff of Cars.

Now let’s get to some numbers. The chart below compares fundamentals for Disney, News Corp. (NASDAQ:NWS), and Time Warner Inc. (NYSE:TWX). These three companies differ in size. Disney has a market cap of $105.98 billion, News Corp. has a market cap of $72.66 billion, and Time Warner has a market cap of $54.72 billion.

DIS

NWS

TWX

Trailing   P/E

18.94

18.74

18.95

Forward   P/E

15.13

N/A

13.81

Profit   Margin

13.07%

11.65%

10.51%

ROE

14.71%

14.60%

10.08%

Operating   Cash Flow

$7.38 Billion

$4.16 Billion

 $3.44 Billion

Dividend   Yield

1.30%

0.60%

2.00%

Short   Position

2.20%

1.60%

2.50%

 

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Let’s take a look at some more important numbers prior to forming an opinion on this stock…

E = Equity to Debt Ratio Is Strong  

The debt-to-equity ratio for Disney is slightly stronger than the industry average of 0.50.

Debt-To-Equity

Cash

Long-Term Debt

DIS

0.40

$3.21 Billion

$17.46 Billion

NWS

0.56

$7.81 Billion

$16.46 Billion

TWX

0.67

$2.84 Billion

$19.87 Billion

 

T = Technicals Are Strong

Disney has been a solid performer over the past three years as well as since its IPO. However, it didn’t perform well during the financial crisis of 2008/2009. Disney is a great company, but it’s not as defensive as many other blue chips because it’s consumer discretionary.

1 Month

Year-To-Date

1 Year

3 Year

DIS

3.03%

18.76%

42.57%

70.39%

NWS

2.21%

22.49%

64.77%

110.30%

TWX

2.25%

23.52%

67.18%

95.29%

 

At $59.14, Disney is trading above all its averages.

50-Day   SMA

55.74

100-Day   SMA

52.83

200-Day   SMA

51.45

 

E = Earnings Have Been Strong            

Revenue and earnings have consistently improved on an annual basis. Barring an economic collapse, this trend should continue.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

37.84

36.15

38.06

40.89

42.28

Diluted   EPS ($)

2.28

1.76

2.03

2.52

3.13

 

When we look at the last quarter on a year-over-year basis, we see a moderate improvement in revenue and a slight decline in earnings.

12/2011

3/2012

6/2012

9/2012

12/2013

Revenue   ($)in   billions

10.78

9.63

11.09

10.78

11.34

Diluted   EPS ($)

0.80

0.63

1.02

0.68

0.77

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Everything is looking up for the industry right now, but a lot depends on the status of the economy. The big question is whether or not this is a real economic recovery or if it’s a debt-fueled bubble.

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Conclusion

Disney has solid margins, strong cash flow, an enormous amount of innovation and creativity, one of the best brand names in the world, and a 1.30 percent yield. Disney is an OUTPERFORM. However, it isn’t the best place to be if the economy heads south in the future.

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