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Disney’s Magic Carpet Ride Continues

Strong earnings and a fabulous outlook propel the entertainment giant


Disneyland DISFrom princess films to family television to fairytale theme parks, Walt Disney (NYSE:DIS) has been an institution in entertainment for almost 90 years.

In fact, modern day malls are nothing but an extension of the idea behind Walt Disney World’s Main Street USA. But, as the economic downturn has discouraged consumers from frivolous spending, is the Walt Disney keeping the party going? Let’s take a look and see whether this company is still as “magical” as ever.

Company Overview

In 1923, the Disney brothers (Walt and Roy)  founded a cartoon studio that ultimately gave birth to beloved animated characters Mickey Mouse and Minnie Mouse. Over the decades, the Walt Disney brand has grown into one of the world’s largest mass media companies, with 14 theme parks around the world, one of Hollywood’s most established studios as well as dozens of cable television networks.

In total, Disney employs 156,000 worldwide and brings in over $40 billion in sales every year.

Earnings Buzz

After the closing bell on Tuesday,  Disney reported solid operating results for the second quarter. Management reported particular strength in its theme parks business as well as its ESPN cable programming.

Compared with the same quarter last year, net income advanced 21% to $1.14 billion. Adjusted earnings weighed in at 58 cents per share, which trumped the 55 cents consensus estimate by 5%. Second-quarter sales also climbed 6% to $9.63 billion. Analysts forecast sales of $9.56 billion, so the company posted a modest sales surprise.

Looking ahead to the next quarter, company leadership is especially optimistic about the company’s movie business. Marvel, a Disney subsidiary, has just released its superhero blockbuster “The Avengers,” and it recorded a record $207.1 million in ticket sales for its opening weekend.

Industry Breakdown

There is no doubt about it; Walt Disney is the premier name in Diversified Entertainment. Out of the 100 companies in this industry, the company is the largest in terms of market capitalization, and its 1.4% dividend yield is fourth highest. Walt Disney also stands out in terms of its Price/Earnings to Growth ratio and earnings growth, which are both at no. 9.

Additionally, the company’s long-term growth rate and return on equity are at 14th and 15th respectively. Walt Disney Co.’s largest competitors are News Corp. (NYSE:NWS) and Time Warner (NYSE:TWX). Of these three companies, Disney has the lowest sales growth, lowest growth margin and second-highest operating margin.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This stock hasn’t been able to break into buy territory in the past year; for nine of the past 12 months this stock has remained at a hold. What’s interesting about Disney is that its fundamentals are pretty solid overall.

The company is solid in terms of seven of the eight fundamentals, the only exception being sales growth. However, what has kept this stock down at a hold is its lackluster buying pressure.

However, after yesterday’s strong earnings announcement, I imagine that buying pressure for this stock will firm up.

Bottom Line: DIS is currently a C-rated hold, but I suspect that the stock may be upgraded when I revisit the data this weekend. If you’re holding shares of DIS, be sure to check my Portfolio Grader page for this stock on Monday.

Recommendation: Hold

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Article printed from InvestorPlace Media,

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