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Disney Stock Has Gone from Undervalued to Overvalued

Stock (Symbol)

Walt Disney (DIS)

Stock Price

$109

Sector
Retail & Travel
Data is as of
January 7, 2017
Expected to Report
Feb 7 – 13
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 pictures through 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
David SharekPeople were bustin on Disney (DIS) stock because ESPN subscribers are down. But now investors are focused on the positives, and the stock has shot up from $92 to $109 since last qtr. Walt Disney is the world’s largest media company, with four main divisions. Here’s the division breakdown with percentage of revenue contributed for fiscal year 2016:

  • Media Networks (43%) — ABC, ESPN, Disney Channel, ESPN Radio.
  • Parks & Resorts (31%) — Disneyland, Walt Disney World, Disney Cruise Line.
  • Studio Entertainment (17%) — Disney Studios, Pixar, Marvel, Touchstone Pictures, Lucasfilm.
  • Consumer Products & Interactive Media (10%) — toys, apps, apparel, books, games.

Although domestic ESPN subscribers fell from 92 million to 90 million last qtr (year-over-year), International ESPN subs increased from 127 million to 141 million. Plus, there’s great growth opportunity for people to subscribe for the service remotely. Under Bob Iger’s leadership the company makes less films and bigger bets in tentpole films, like Star Wars films. Tentpoles are big production films that produce meaningful revenue via ticket and merchandise sales, thus the Consumer Products division has doubled profits the past four years. Tentpole films work very well in China. Shanghai Disney opened in 2016, and is doing great, but Disney has to split the profits with China. Overall, DIS is one of the safest stocks in the world. It’s grown profits 10% per year the last decade and the future long-term growth rate is also estimated at 10% per year. The stock pays a dividend, with a yield of around 1.5%. Although DIS is up big since last qtr the stock’s P/E of 18 is reasonable. Still, my Fair Value is a P/E of 17 or $101 a share.

 

One Year Chart
Although the stock is up big since last qtr, estimates didn’t increase. In fact, 2017 profit estimates fell from $6.06 to $5.92 as the company missed estimates of -3% profit growth when it delivered -8% growth. Qtrly estimates for NxtQtr also fell from -1% to -8%. Analysts expect profit growth of 5%, 4% and 17% the following three qtrs. I feel the stock has gotten a bit ahead of itself, as the numbers don’t point to the stock being timely at this time.
Fair Value
Disney sells for 18x earnings earnings, which puts this stock slightly over my 2017 Fair Value of 17x earnings. But honestly, I could have given the stock a Fair Value of 18 or 19. I didn’t because estimates don’t look great and they fell this qtr.
Bottom Line
Walt Disney is a high quality Blue Chip stock many families and trust funds have held for decades or even generations. The company has grown profits at a double-digit rate the last decade, which for such a quality company is quite an accomplishment. This stock was a real value last qtr when it sold for 15x earnings and it had a lot of support between $92 and $95 a share. Now around $109 the stock’s a bit ahead of itself, but momentum is high so investors can get in here if they wish. DIS ranks 25th of 29 stocks in the Conservative Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

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Aggressive Growth Portfolio

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Conservative Stock Portfolio

25 of 29

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