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The Walt Disney Company (DIS) - Stock Analysis
Posted by: David Kerr (IP Logged)
Date: September 20, 2013 05:06PM

The Walt Disney Company (DIS) is a well diversified worldwide family entertainment and media enterprise. The company operates through five business segments:

Media Networks: This segment focuses on its broadcast television network, production and distribution operations, international and domestic cable networks, domestic broadcast radio networks and stations, and publishing and digital operations. This segment is massive, because iit operates not only the ABC network and 8 owned television stations, but also the ESPN Radio Network, Radio Disney Network, and 35 owned and operated radio stations. This essential segment also produces, licenses, and distributes animated and live-action television programming, as well as operates ABC, ESPN, ABC Family, and SOAPnet branded internet businesses.

Parks and Resorts: This is the segment that most people think about when they think about Disney. The surprising statistic is that the Parks and Resorts segment comprises less than 20% of the company’s overall business. This segment owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort in California. This segment includes theme parks, resort hotels, a retail, dining, and entertainment complex, a sports complex, conference centers, campgrounds, water parks, and other various recreational facilities. The Parks and Resorts segment also markets and manages the Disney Cruise Line, the Disney Vacation Club, Adventures by Disney, and the Disney Resort and Spa in Hawaii. It also manages Disneyland Paris and Hong Kong Disneyland Resort, as well as licenses the operations of the Tokyo Disneyland Resort.

Studio Entertainment: This segment produces and acquires live-action and animated motion pictures, direct-to-video content, musical recordings, and live stage plays for worldwide distribution to the theatrical, home entertainment, and television markets. This segment has its own distribution and marketing companies to distribute these products in the United States. It also distributes through joint ventures and independent companies in foreign markets primarily under the Walt Disney Pictures, Touchstone Pictures, Pixar, Marvel, and Disneynature.

Consumer Products: This segment licenses trade names, characters, and more to manufacturers, retailers, show promoters, and publishers throughout the world. Through the Disney Store and DisneyStore.com, it also engages in retail and online distribution of products. This segment publishes children’s books and magazines, comic books, and operates English language learning centers in China among it’s other products.

Interactive Media Segment: This segment creates and delivers branded entertainment and lifestyle content across interactive media platforms. Its primary business is operating, producing, and distributing console, online, and mobile games.

Company History

1928: Mickey and Minnie Mouse debut in Steamboat Willie, Disney’s first official animated film with sound effects and dialogue.

1940: The company issued 155,000 shares of 6 percent cumulative convertible preferred stock in the over-the-counter market.

1955: Disneyland first opened its gates in California. Walt Disney Productions invested $500,000 to own 34.5% of Disneyland, Inc., the company that owned Disneyland. In this same year, the Mickey Mouse Club first aired on ABC.

1957: Walt Disney Productions, Inc. exercised options to purchase an additional 31.0% stake in Disneyland, Inc. for $528,810.

1960: The company purchased the remaining 34.5% interest in Disneyland, Inc. for $7.5 million.

1971: Walt Disney World opened.

1981: Walt Disney Productions acquired the rights to Walt Disney’s name, likeness and portrait, as well as the steam train and monorail systems at Disneyland, from Retlaw for 888,461 shares of common stock, worth $46.2 million.

1982: Epcot opens at Walt Disney World

1983: Tokyo Disneyland opened six miles from downtown Tokyo. That same year, the Disney Channel debuts on cable television programming.

1987: The first Disney Store opens in California.

1988: The Walt Disney company acquired the Wrather Corporation, the assets of which include the Disneyland Hotel, for approximately $161 million in cash and $89 million in debt.

1989: The Disney-MGM Studios Theme Park opened at the Walt Disney World Resort. In the same year, 51% of Euro Disney S.C.A.’s 170 million shares are offered to European investors at FF72 per share. A subsidiary of the Walt Disney Company owned the remaining 49%.

1992: Disneyland Paris opened 20 miles outside of Paris, France.

1993: The Walt Disney Company acquired Miramax Film Corporation.

1994: Disney’s first stage show opened on broadway and broke attendance and box office records. Disney theme parks also welcomed their one-billionth guest.

1996: Disney completed its shareholder-approved acquisition of ABC, and launched Disney.com.

1997: Disney and Pixar join forces.

1998: Disney’s common stock split for a three-to-one stock split.

1998: Disney cruise line launched.

2001: Disney California Adventures, the company’s sixth domestic theme park, opened in California.

2005: Hong Kong Disneyland opened in China. In this same year, Disney’s TV shows are available for download on Apple’s iTunes.

2006: Disney acquired Pixar, as well as Hungama Television Channel in India, a leading Indian children’s television channel.

2008: The Walt Disney Company acquired more than 99% of of Jetix Europe, a European kids entertainment company.

2009: Walt Disney Studios enter into an agreement with DreamWorks to have all upcoming live-action motions pictures distributed under their partnership with Reliance BIG Entertainment. This same year, Disney XD launches. Disney also announced its plans to become an equity owner of Hulu. Disney also acquired Marvel Entertainment this year.

2010: Disney acquired social game developer Playdom Inc, and sold Miramax Films to Filmyard Holdings, LLC.

2012: Disney acquired Lucasfilms, Ltd.

That is a very summarized list of the massive history that Disney has had. Obviously Disney has been doing this for a long time now, and doing it right. Through easy and tough economic times, Disney continues to expand and be innovative. The company currently has construction underway in Shanghai, China, with plans to open a new theme park by 2016.

Financial Strength

Pixar, Marvel, and now Lucasfilms? What a strong group acquisitions. Disney makes money in so many different ways that it diversifies itself greatly. When most people think of Disney they usually think of either Disneyland, Disney movies, or both. Granted, the company’s parks and resorts account for just under 20% of the share price, but the Disney Studios segment only accounts for roughly 7.5%. A large part of Disney’s stock price is actually attributed to its 80% ownership in ESPN.

Disney has an average revenue growth of 6%, an average EBITDA growth of 11.7%, an average book value growth of 7.3%, and an average free cash flow growth of 7.6% over the last 10 year. The company also has an impressive average free cash flow growth of 18.8% over the last 12 months.

Disney has been repurchasing shares ever since an agreement was made in 1998. In recent years they have been buying back roughly $4 billion worth of common stock annually. Earlier this month, the company announced that they will be increasing its stock buybacks anywhere from $6 billion to $8 billion for fiscal year 2014.

The company has also been increasing, its dividends, or occasionally keeping them the same, over the past 10 years. Disney increased its dividend per share from $0.40 in September of 2011 to $0.60 in September of 2012, and now currently offers a $0.75 dividend per share. Those are huge increases.

Net income and cash have also been on the rise over the past few years for Disney as well. Here is an excerpt from the company’s most recent 10-K showing their consolidated statement of cash flows:



Management

Robert Iger has been the CEO of Disney since 2000. He has done amazing things for the company, including the massive acquisitions listed previously. Iger’s contract was supposed to end at the beginning of April, 2015, but the company recently announced that they are extending his position in the company until June of 2016.

If you take a look at the Proxy Statements that Disney releases, you will be impressed with how the company likes to go in depth on how they justify Iger’s compensation based on the company’s earnings. 2012 was an impressive year for Disney, and the increase in Iger’s compensation shows that.



Valuation

Subtracting Disney’s $3.9 billion in cash from the company’s $116.7 billion market cap shows us that we can purchase Disney’s operations for $112.8 billion. Since the company has a net income of $5.986 billion (TTM), DIS can be viewed as currently trading at a P/E of 18.84, which is slightly under the current 19.94.

S&P Capital IQ currently has a 12-month target price for Disney at $75.00 even, and Thomson Reuters is estimating $72.10.

Conclusion and Opinion

In my opinion, it’s hard to compare companies to Disney. As mentioned previously, the company diversifies itself in so many unique ways. Disney’s biggest competition, Time Warner, Inc. (TWX), definitely has a more impressive market cap to revenue ratio, but because of Disney’s business diversification, I see Disney as a safer play.

I can’t make the argument that Disney is selling at an extreme bargain, but Disney is definitely a quality company that continues to improve over time. With recent strong acquisitions, impressive increases in dividends and stock buybacks, I think it is hard to go wrong holding on to this company long term.

End Notes

Disclosure: No current position held at the time of writing.

Disclaimer: The opinions and ideas in this article are for informational and educational purposes only. They are not a recommendation to buy or sell any stock at any given time. As always, it is imperative for each individual investor to do their own due diligence and perform their own research on any and all stocks before making an investment decision.


Stocks Discussed: DIS, TWX,
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