Stock (Symbol)

Walt Disney (DIS)

Stock Price

$99

Sector

Retail & Travel

Data is as of

June 20, 2016

Expected to Report

Aug 2 – Aug 8

Company Description

The Walt Disney Company’s business segments include Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. The Media Networks segment includes cable and broadcast television networks, television stations, and radio networks and stations. The Parks and Resorts segment owns and operates the Disney Resorts and Disney Cruise Line. The Studio Entertainment segment produces live-action and animated motion picturesthrough Walt Disney, Pixar, Marvel, Touchstone Pictures & Lucasfilm. The Consumer Products segment engages with licensees to design a range of products. Source: Thomson Financial

Sharek’s Take

Walt Disney (DIS) stock is 20% off its 52-week high, and I feel its time to buy. The Walt Disney Company is the world’s largest media company. Here’s how its division breakdown with percentage of revenue contributed:

Media Networks (44%) — ABC, ESPN, Disney Channel, ESPN Radio.
Parks & Resorts (31%) — Disneyland, Walt Disney World, Disney Cruise Line.
Studio Entertainment (14%) — Disney Studios, Pixar, Marvel, Touchstone Pictures, Lucasfilm.
Consumer Products & Interactive Media (11%) — toys, apps, apparel, books, games.

DIS has been under pressure recently as ESPN has been losing subscribers. But the network is proactively slashing payroll from expensive studio hosts as viewers really just want the sports and highlights anyway. There’s a few positive catalysts coming Disney’s way. Shanghai Disney just opened (but DIS has to split the profits with China), the USD has been flat for a while so F/X costs are set to fall, its new movie Finding Dory should be huge, and the NBA Finals were record-setting, which helped ABC’s profits. DIS sells for 17x earnings, has an estimated long-term growth rate of 11% and pays a dividend once a year (or more) which is around 1% (or more). This is one of the world’s safest stocks and I will add it to the Conservative Growth Portfolio. This stock was $5 a share thirty years ago, $20 twenty years ago, $30 ten years ago, $120 last year, and is below $100 today.

One Year Chart

Last qtr Disney had 4% revenue growth but profits increased 11%. Analysts weren’t impresses because the company missed estimates by a little, after beating the street the prior 3 qtrs. Looking ahead, it seems like profit growth might slow. Estimates for the next 4 qtrs are 11%, 3%, -1% and 7%. We’ll see if any of the catalysts listed earlier help this cause.

Fair Value

Overnight, Britain elected to drop out of the EU and that ha sent stocks down worldwide. DIS is currently $96, which is 16 and a half times 2016 earnings estimates. That’s around the average of what the stock usually sells for. I can imagine DIS back at $120 next year though, which would be 19x earnings using current estimates. On the end if the P/E is 15 and DIS makes $6.19 as expected the stock will be $93.

Bottom Line

Walt Disney has been a solid performer the past decade. The stock’s grown 13% a year on the back of 14% profit growth. Now DIS is on a pullback and I feel this is a good time to purchase the stock as it’s 20% off its highs. Disney is a high quality Blue Chip stock many families and trust funds have held for decades or generations. DIS will rank 24th of 38 stocks in the Conservative Portfolio Power Rankings.