Will Disney Continue to Make Investors Happy?

With shares of The Walt Disney Company (NYSE:DIS) trading at around $65.57, 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 owns 80 percent of ESPN, and ESPN is the most profitable of all Disney properties. Therefore, ESPN is very important. It’s available in over 100 million American homes, which is approximately 1/3 of the population. ESPN is cutting 300 to 400 jobs, and it’s losing a small Denver office. Disney has stated that this has been done for cost management purposes. In related news, ESPN has acquired the rights to U.S. Open Tennis, and it’s beginning a new channel for SEC Football.

It should be noted that 150 employees were laid off at Lucasfilm last month. Perhaps Disney is anticipating revenue problems and doing what it can to make sure the bottom line impresses. CEO Robert Iger stated that he’s “relatively optimistic” for the remainder of the year. That sounds like a wise choice of words for someone who is unsure of how the remainder of the year will pan out while also not wanting to frighten investors. As far as leadership goes, Bob Iger is a winner. According to Glassdoor.com, 90 percent of employees approve of him.

Disney beat expectations last quarter. And Iron Man 3 has been a big success. It’s currently rated 7.7 on IMDb.com and 78 percent on RottenTomatoes.com. These are high numbers, especially for IMDb. This adds value to the Iron Man franchise.

In regards to theme parks, New Fantasyland has been a big hit at Disney World. This has attracted more visitors. Thanks to higher costs, spending within Disney parks has also increased. However, looking ahead, it will be challenging for Disney to maintain these high prices.

Sometimes online activity can act as a clue for demand. According to Alexa.com, online traffic for Disney.com has seen a slight decline over the past year. Over the past three months, pageviews-per-user has declined 9.18 percent, time-on-site has declined 9 percent, and the bounce rate has increased 13 percent.

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The chart below compares fundamentals for Disney, News Corp. (NASDAQ:NWS), and Time Warner Inc. (NYSE:TWX).

Trailing P/E 19.86 13.34 18.43
Forward P/E 16.64 17.18 14.04
Profit Margin 13.64% 16.68% 11.00%
ROE 15.43% 19.56% 10.56%
Operating Cash Flow 7.72B 3.83B 3.76B
Dividend Yield 1.10% 0.50% 1.90%
Short Position 2.20% 1.00% 1.30%


Let’s take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong

Disney has outperformed its peers year-to-date.

1 Month Year-To-Date 1 Year 3 Year
DIS 4.82% 30.55% 48.68% 106.4%
NWS 5.08% 27.33% 69.93% 124.0%
TWX -1.55% 24.59% 75.86% 113.7%

At $65.57, Disney is trading well above its averages.

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50-Day SMA 62.79
200-Day SMA 55.22

E = Equity to Debt Ratio Is Strong

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

Debt-To-Equity Cash Long-Term Debt
DIS 0.38 3.95B 16.94B
NWS 0.49 9.32B 16.47B
TWX 0.65 2.49B 19.44B

E = Earnings Have Been Steady

Earnings and revenue have steadily improved on an annual basis.

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 37,843 36,149 38,063 40,893 42,278
Diluted EPS ($) 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 an increase in revenue and earnings.

Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in millions 9,629 11,088 10,782 11,341 10,554
Diluted EPS ($) 0.63 1.01 0.68 0.77 0.83

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

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Disney is one of the strongest brands on the planet, and it has a strong leader. Therefore, barring any highly unexpected events, it’s a long-term OUTPERFORM. On the other hand, Disney is sensitive to market corrections. As odds of a Bernanke exit increase, the market is more susceptible to downside moves. Since Disney lacks resiliency in bear markets, Disney is currently a WAIT AND SEE.

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All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.