DIS Market Research & Analysis Report
Updated Oct 9, 2015

Growth and Balance Sheet

The Walt Disney Co. (DIS) on Tuesday reported fiscal third-quarter profit of $2.48 billion. The company said it had profit of $1.45 per share. Disney reported revenues of $13.1 billion, an increase of 5% from $12.5 billion in the year prior period. FactSet consensus on revenue was $13.2 billion. Disney's studio entertainment arm saw a 13% jump in revenues over the prior year period, reporting $2 billion in revenue during the third quarter. The company highlighted the performance of Marvel's "Avengers: Age of Ultron" and "Cinderella" as drivers. The company is facing two challenges: fewer subscribers at cable networks such as ESPN, its biggest business, and foreign exchange losses from the strong dollar that are cutting results for both cable TV and international theme parks. The warning unsettled investors accustomed to stellar sales and profit from the Burbank, California-based company. Disney expects affiliate revenue from pay-TV providers like Comcast Corp. to fall short of previous forecasts, Chief Financial Officer Christine McCarthy said Tuesday on a conference call with investors. That, along with foreign exchange losses, will limit cable profit growth, she said. Income declined at the company’s international theme parks because of higher costs at Disneyland Paris and lower attendance in Hong Kong. Including domestic parks, the division posted a 4 percent gain in revenue to $4.13 billion, while profit increased 9 percent to $922 million, the company said. Resorts are Disney’s second-largest business. Profits in consumer products, from licensing Disney characters such Mickey Mouse and Iron Man to toymakers and other manufacturers, grew 27 percent to $348 million. Revenue expanded 6 percent to $954 million.

Valuation

The Walt Disney Co. (DIS) P/E stands at 21.78 below the industry average of 22.33, and above the S&P 500 average of 17.45 The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 14.90x to 22.6x trailing 12-month earnings. DIS's current Price/Sales of 3.40 is above the average of its industry of 2.25. DIS’s head to head comparison to its main competitors shows that the company has gross margin above its peers, and one that is above the industry average. The achieved operating margin of the company is at the average operating margin of the selected competitors, and it is above the industry average. The quarterly revenue is above the industry average and above it’s main competitors. The stock is currently trading below its intrinsic value of $116.75 this suggests that the stock is undervalued at these levels. The beta of 1.57 implies lower volatility of the stock with respect to the S&P 500. DIS has shown positive earnings consistency over the last five years. Company’s earnings have increased by 19.31% over the same period. The current quarter earnings in comparison to the same quarter last year are -13.28%. DIS’s Total Debt/Equity of 32.83 is neutral. DIS’s current price levels are below the maximum level, is trading 16.70% below the 52 week high of $122.08, and the technical analysis give a neutral view of the stock. The majority of analyst ratings are bullish. DIS dividend yield stands at 1.80% with payout ratio at 37.62%. 

About DIS

The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company. The Company operates in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. The Company has a 51% effective ownership interest in Disneyland Paris, a 5,510-acre development located in Marne-la-Vallee, approximately 20 miles east of Paris, France. The Company manages and has a 40% equity interest in Euro Disney S.C.A. The Company owns a 48% interest in Hong Kong Disneyland Resort through Hongkong International Theme Parks Limited. On November 7, 2012, the Company sold its 50% equity interest in ESPN STAR Sports (ESS). On December 21, 2012, the Company acquired Lucasfilm Ltd. LLC.

Competitor Comparison

The Walt Disney Company (NYSE:DIS) N.V.

Highlights

The Company has a 51% effective ownership interest in Disneyland Paris, a 5,510-acre development located in Marne-la-Vallee, approximately 20 miles east of Paris, France. The Company manages and has a 40% equity interest in Euro Disney S.C.A. The Company owns a 48% interest in Hong Kong Disneyland Resort through Hongkong International Theme Parks Limited. On November 7, 2012, the Company sold its 50% interest in ESPN STAR Sports (ESS). On November 7, 2012, the Company sold its 50% equity interest in ESPN STAR Sports (ESS). On December 21, 2012, the Company acquired Lucasfilm Ltd. LLC. The stock closed yesterday’s trading session at $104.61. In the past year, the stock has hit a 52-week low of $78.54 and 52-week high of $122.08. DIS has a market cap of $176.57 billion and is part of the services sector.

• ·Brand reputation

• Cable networks operations enjoys significant reach

• Strong brand portfolio  

• Diversified entertainment business     

• Diversified businesses

• Localization of products

   

   

   

  
   

• Geographical concentration

• ·Few opportunities for significant growth through acquisitions

• Heavy dependence on income from North America

DIS Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. DIS's 52 week high is $122.08 current price is 104.61, is 16.70% below the 52 week high. 

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 21.78 below the average industry P/E ratio of 22.33 and is above the S&P 500 P/E ratio of 17.45. 

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 7.73% of DIS stock. Management's representation is large enough. This does satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

DIS is trading in the range of $97.77 - $105.95 in the past 30 days. The stock has been showing support at $101.00 and resistance in the $107.00 range. The stock is trading above the 50-Day Moving Average and below the 200-Day Moving Average. The RSI(14) is 55.40. Our indicators give a neutral view on DIS. 

The financial health of the company the higher the better, we evaluate all the financial ratios of the company. 

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 9 Buy, 10 Outperform, 13 Hold, 0 Underperform and 0 Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. DIS’s annual EPS for the last 5 years were 2.03, 2.52, 3.12, 3.38, 4.26 this type of earnings action is positive. 

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 25% or should be less than the average Debt/Equity for its industry. DIS’s have total debt/equity ratio of 32.83 which is neutral.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. DIS’s EPS growth for this quarter relative to the same quarter a year earlier is -13.28, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. DIS’s annual earnings growth rate over the past five years is 19.31%, above the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.