Today, we”ll look at Walt Disney Co. (NYSE:DIS). You know it’s a diversified entertaiment conglomerate, but how diversified is it? The company’s Media Networks segment includes TV production and networks (including ABC and ESPN); 46 owned radio stations; and Disney-branded Internet Web site businesses, as well as Club Penguin.
The Parks and Resorts segment owns and operates … well, you know. It also includes Disney Vacation Club, Disney Cruise Line and ESPN Zone facilities. The Studio Entertainment makes movies, music and live stage plays. The Consumer Products segment licenses Disney characters, and visual and literary properties to manufacturers, retailers, show promoters and publishers; and publishes books and magazines.
The key driving factor regarding Disney is the economy. However, because the company is so diversified, certain segments do worse than others in hard times, and others are able to hold their own. On the movie side, the purchases of Pixar and Marvel Studios really drive company revenues. These two premium studios execute flawlessly — none of their films have ever lost money and, in fact, recently have been outrageously profitable.
Stock analysts looking out five years on Disney see annualized earnings growth at 15%. At a stock price of $32, on FY 2011 earnings of $2.49, the stock presently trades at a P/E of 13. Time Warner (NYSE:TWX) and Viacom (NYSE:VIA) are the closest competitors, with P/Es of 13 and 25, respectively, so Disney is on the low end of the valuation scale.
Disney’s financials are stellar. The company carries $3.5 billion in cash and $9.2 billion in debt. Trailing 12-month cash flow was $3.7 billion. The company also had 4.5 times the amount of free cash flow necessary to pay its 1.2% dividend. Disney makes a lot of money and reinvests that cash right back into its gigantic business (movies cost a lot of money).
No insider purchases have been made in a long time, which is discouraging but not a deal-breaker.
Conclusion
If we put an 15 P/E on Disney, then, on projected 2015 earnings of $4.43 per share, and factor in 1.2% compounded dividend yield reinvested, we get a price target of $72. That’s an amazing total return of 120% from here, suggesting Disney falls into the category of both a value and a growth stock. Disney is a big buy to me.
- I believe Disney is a buy for regular accounts.
- I believe Disney is a buy for retirement accounts.
Lawrence Meyers does not own shares of any company mentioned.
