Overview:
The Walt Disney Co.'s (DIS, Financial)Â share price took a hit due to the recent selloff related to the potential trade war with China. This has created opportunities for investors to pick up shares of great companies like Disney at a discount.
Disney is one of the greatest content creators, producing some of the most poplular cinematic franchises. The company owns Marvel, Lucas Films and other top content brands. Some of the highest grossing movies of all time are Disney movies. Currently, Disney's "Black Panther" is the highest grossing superhero film in history, raking in over $1 billion since its release.
The company went from a small animation studio to one of the largest media companies in the world. Disney owns a diversified portfolio of media and content assets. It is planning to launch its own streaming platform, cutting out middleman Netflix(NFLX, Financial). Currently, Disney is selling for 13 times earnings and 11.5 times its pretax earnings. Disney's average price-earnings ratio has been 17 times earnings over the past decade.
Business overview:
Disney is one of the most well established media companies in the world and continues to expand its footprint. The company is in the process of acquiring some highly valuable assets from 21st Century Fox(FOXA, Financial)(FOX, Financial). When the $60 billion deal goes through, Disney will own the rights to the "X-Men" and "Fantastic Four" franchises, along with other assets.
CEO Bob Iger continues to run Disney with a great eye for purchasing assets that will expand its economic moat. Under his leadership, Disney acquired Lucas Films, Marvel and Pixar, expanding its reach in the entertainment industry.
Marvel has been great for Disney and its shareholders. The company also expanded its influence when it acquired Lucas Films, adding the "Star Wars" franchise to its large family. It also dominates cable with shows like "Modern Family" and "Agents of Shield."
The company is in the process of changing how it distributes content to consumers by launching its own streaming service. Disney plans to remove all of its content from Netflix and put it on its own platform. The media giant has one of the largest and most popular content libraries in the world.
The parks and resorts segment also continues to be a growth driver for the company at home and abroad.Â
First-quarter results:
| Period Ending: | 2017 30/12 | 2017 30/09 | 2017 01/07 | 2017 01/04 | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Current Assets | 17274 | 15889 | 17151 | 16270 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | 97734 | 95789 | 92752 | 91807 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Liabilities | 19875 | 19595 | 17094 | 17365 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities | 54445 | 54474 | 50221 | 48023 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Equity | 43289 | 41315 | 42531 | 43784 | |||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities & Shareholders' Equity | 97734 | 95789 | 92752 | 91807 | |||||||||||||||||||||||||||||||||||||||||||||
| Total Common Shares Outstanding | 1500 | 1500 | 1600 | 1600 | |||||||||||||||||||||||||||||||||||||||||||||
| Total Preferred Shares Outstanding | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
* In millions of USD (except for per-share items).
Disney's fiscal first quarter ended on Dec. 31. The company reported revenue increased 4% to $15.35 billion and net income increased 2% to $2.52 billion.
Revenue from parks and resorts increased 13% to $5.15 billion. The media segment's revenue increased by less than 1% to $6.24 billion.
Disney continues to maintain a gross margin of 45% and pretax margins of 25%. The company is highly profitable with a strong economic moat to protect the business. It has consistently produced a return on equity of 21%, return on assets of 10% and return on invested capital of 17%.
As a result of Disney's strong brand power, it has produced above-average profits.
Valuation:
Currently, Disney is selling for 13 times earnings, its lowest price-earnings ratio in the last five years. Over the last year, the company has underperformed the broader market, driven by cord-cutting fears and heavy investments in its own streaming platform. These fears are overblown, however, and Disney's strong content library will drive profits and shares higher. While Netflix has benefited from Disney's content, it may struggle without it.
Disclosure: I do not own shares of Disney, nor plan to purchase shares in the next 72 hours.
