On Nov. 8, guru Mario Gabelli (Trades, Portfolio) told CNBC that Disney (DIS, Financial) can go from $116 today to $160 in two years.
It will take two years, but that's good because it will qualify for long-term gains tax, Gabelli said. Gabelli likes that the company has no more than $40 billion of debt pro-forma for the corporate events that are going on related to its Fox (FOX.A, Financial) acquisition.
He also appreciates the significant Ebitda. There is indeed $17.1 billion of Ebitda already, which calculates to an EV/Ebitda multiple of around 10x at current enterprise value:
Gabelli thinks capex will be limited. Most of Disney's business is rather capital light in nature, perhaps with the exception of theme parks.
He sees $10 dollars per share in earnings next year, which is 25% above current analyst estimates.
He said he thinks the market will apply a 15x to 20x earnings multiple on that. To be fair, the stock traded below a 15x earnings multiple only around the financial crisis. It is now at 14.6x, which seems to be on the lower end of its trading range over the last 15 years:
Both sell-side and Gabelli seem to expect growing earnings, and that doesn't seem to be reflected in the stock.
Gabelli did not have a definite answer to where the earnings will come from, as he views the content business as highly unpredictable. But he did mention the Avatar franchise. Filming just wrapped on Avatar II and III. The first Avatar from 2009 is still the highest worldwide grossing movie in history. It is also the second-highest grossing movie domestically. It is a fantasy-type setting. The environment is an important theme of the movie, and that is certainly still a theme that interests many people globally:
Gabelli also mentioned that China allows only around 34 movies in the country per year. What if that opens up? It could be a real opportunity for a content powerhouse such as Disney. Watch the full clip below. It looks to be another interesting idea by guru Gabelli:
Disclosure: no positions.
