Walt Disney (NYSE:DIS) is a stock many pundits love. The Mouse House, though, hasn’t returned the affection to investors. Then again, many of the other media conglomerates don’t look so hot either.
Shares of the Burbank, Calif.-based Disney have barely budged over the past 52 weeks, while peers such as CBS (NYSE:CBS), Time Warner (NYSE:TWX).. News Corp (NYSE:NWS.A), Comcast (NASDAQ:CMCSA) and Viacom (NYSE:VIA.B) each posted double-digit gains during the same time. Still, most aren’t compelling values.
Disney isn’t cheap. It trades at a price-earnings ratio of 15.71, near its five-year high, according to Reuters. Its 1.53% dividend yield lags the 2.08% average of the S&P 500, giving investors another reason to avoid the stock.
Wall Street analysts have an average one-year price target of $42.33 on Disney, about 7% above where it currently trades. News Corp., Time Warner and CBS also each have estimated upside potential of less than 10%. Analysts, however, project Viacom and Comcast each to rise more than 16% over the next 52 weeks. Most of these stocks are trading at lofty multiples versus their historical averages, especially since they’re expected to increase revenue in the single digits.
Philadelphia-based Comcast, however, is the exception. The cable giant is expected to boost revenue by 53.3% to $14.9 billion in the December quarter because of the NBC Universal takeover. Results from NBC Universal were mixed in the third quarter and likely will be the same in the fourth. Comcast, though, trades at a multiple of 18.72, well under its five-year high of above 40. Comcast may be the only media stock worth owning in this group.
The case against Disney is especially strong. First, despite the release of several high-profile movies, the conglomerate’s box-office receipts have been mediocre. Box Office Mojo shows Disney’s Buena Vista studios unit ranking fourth in box-office market share with 12.2% in 2011. The company’s animated feature Mars Needs Moms bombed. Cars 2 may have grossed more than $550 million worldwide so far, but it received such negative reviews that director John Lasseter was forced the defend the film in The New York Times.
Further hurting Disney’s profits are upgrades to its theme parks, including a plan that would more than double the size of Fantasyland at the Walt Disney World Resort, the first major expansion to the Florida park since it opened in 1971. The strengthening of the U.S. dollar and the continued weakness of economies in Europe may scare away overseas visitors. About 3.6 million of the estimated 51 million or so people who visited Orlando in 2010 came from outside the U.S., according to official statistics.
The ABC TV network also remains a challenge. Despite critically acclaimed hits such as Modern Family, revenue at the network fell 1% in the third quarter though operating income rose 20%. Flops such as the reboot of Charlie’s Angels didn’t help the network’s bottom line either. ABC World News Tonight with Diane Sawyer is making strides in the ratings, though it remains in second place behind NBC Nightly News.
Another overhang is the late Steve Jobs. The Apple co-founder was Disney’s largest shareholder, and his estate still controls that stake through a trust. His widow Laurene didn’t seek a board seat. It’s highly likely that she may sell some Disney stock to, among other things, pay for the sizeable taxes that are due.
Given the uncertainties around the stock, it seems prudent for investors to avoid Disney at least for now. Comcast, though, deserves consideration.
Jonathan Berr doesn’t own any shares mentioned here.