Can Disney’s Stock STAR STATUS Continue?

Disney (NYSE:DIS) stock has been on a tear in a wildly volatile market, up 32% so far this year.  Disney lived up to its star status, reporting record earnings for Q2 2012.  Earnings per share of $1.01 easily beat consensus expectations of $0.93 and represented a 31% increase year over year.  However, revenue of $11.1 billion was a tad short of estimates for $11.3 billion, although the reported revenue was up 4% from Q2 2011.

Considering its impressive run up in the share price to date, is Disney right now a BUY, a WAIT and SEE, or a STAY AWAY?

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

C = Catalyst for a Stock’s Movement

Disney is a media conglomerate into just about everything but it is Disney movies that offer the best chance to provide a catalyst.  When their big budget blockbuster John Carter choked at the box office, the stock price fell.  Upcoming releases for 2012 include The Odd Life of Timothy Green (August 15), Finding Nemo 3D (September 14), Frankenweenie (October 5), and Wreck It Ralph (November 12).

H = High Quality Pipeline

Disney has a breadth and depth in its revenue streams its major competitors simply can’t match.  While other media conglomerates like News Corporation (NASDAQ:NWS), Time Warner (NYSE:TWX), DreamWorks Animation SKG (NASDAQ:DWA), and Viacom (NYSE:VIA),can release blockbuster movies, none has the range of “franchise” movies like Disney’s Pirates of the Caribbean series and their assorted Marvel comic book characters.

E = Equity to Debt Ratio is Close to Zero

Disney’s debt to equity ratio of .42, or 42% is average at best.  However, their total debt of $15.02 billion and $3.37 billion cash on hand bests competitor Time Warner (NYSE:TWX) with only $2.47 billion cash and $19.88 billion in total debt.  Time Warner’s debt to equity ratio is .68 and competitor Viacom (NYSE:VIA) has a debt to equity ratio of 1.09, or 109%.

A = A Level Management Runs the Company

Unlike many companies that are very slow to replace top level executives Disney has made numerous changes at the top over the past few years.  Management is quick to react to less than the best results in any of its operating segments.  In addition, their acquisition track record has been stellar to say the least.  With the perception their own animation studios were falling behind the times, Disney went out and bought Pixar.  The recent acquisition of Marvel Comics gives them a wealth of characters around which they can build movie franchises and all the lucrative merchandise that accompanies a successful series.

T = Technicals on the Stock Chart are Strong

Since the beginning of 2012 Disney’s share price has been moving above its 20 Day SMA (Simple Moving Average); its 50 Day SMA; and its 200 Day SMA.  As of August 10th 2012 the share price was 5.15% above the 20 Day SMA; 502% above its 50 Day SMA; and 26.40% above its 200 Day SMA.  Early In the first quarter both the 20 Day and the 50 Day SMA crossed above the 200 Day SMA and have remained in an upward trend ever since.

S = Support is Provided by Institutional Investors & Company Insiders

Disney is a favorite of big institutional holders with 87.33% institutional ownership.  The top five institutional holders are State Street, Vanguard, Fidelity, Massachusetts Financial Services, and BlackRock.

E = Earnings are Increasing Quarter over Quarter

Over the last five quarters Disney has had a few bumps in the road but the last two quarters have maintained increases.  For Q2 2011 EPS was $0.78 with EPS of $0.59 for Q3, $0.81 for Q4, $0.64 for Q1 2012 and their recent record quarterly earnings at $1.01.

E + Excellent Relative Performance versus Peers and Sector

Time Warner (NYSE:TWX) reported on August 01 2012 and although they beat EPS estimates and missed on revenue, both numbers were down year over year.  According to Yahoo finance, Disney has ttm (trailing twelve month) EPS of $3.02 and operating margins of 21% stands in sharp contrast to industry average EPS of $0.05 and 4% operating margin.

T = Trends Support the Industry in which the Company Operates

Developments in mass media are expanding in dramatic fashion and Disney is there in every nook and cranny.  They recently got into the video game space to complement their other offerings.  Although there is some concern another global economic shock could hurt their theme parks operation, movie attendance actually goes up in recessionary periods.

Conclusion

Disney is one of those stocks you BUY and forget about, except perhaps to add a share or two on the dips.

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