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Shares of Walt Disney (DIS) rose after the entertainment company announced that it is buying a major online video content provider for $500 million. Is this a signal to buy?
Find out now.
In 1923, the Disney brothers 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, Walt Disney Co. employs 175,000 worldwide and brought in over $45 billion in the last fiscal year. Yield seekers may like to know that Walt Disney stock pays a modest (1.1%) dividend.
Monday night Disney announced plans to buy out Maker Studios for $500 million, with an agreement to pay out an additional $450 million if certain performance goals are met. What’s special about Maker Studios is that it is the largest provider of YouTube content for young people. Maker Studios operates 55,000 channels and brings in 5.5 billion monthly views from 380 million subscribers and more.
The acquisition will give Walt Disney a handhold on the online video market, particularly with the millennials demographic. DIS shares rose after the announcement.
For the current quarter, the analyst community expects sales to grow 6.1% and earnings to jump 20.3% over last year. This is while the average Diversified Entertainment company is headed towards 50.9% earnings growth. The following quarter is expected to continue the trend, with 5.8% sales growth and 16.5% earnings growth.
For FY 2014 Disney is expected to see 6.6% top-line growth and 19.2% bottom-line growth, also below the industry average of 49% annual earnings growth. So while Disney isn’t growing as quickly as some of its smaller competitors it still has solid sales and earnings prospects.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Disney has solid fundamentals, particularly operating margin growth, earnings growth, earnings surprises, analyst earnings revisions, cash flow and return on equity (Bs).
So DIS receives a B for its Fundamental Grade. Meanwhile, institutional interest in Disney has picked up of late so last January I upgraded DIS to a buy. The stock receives a B for its Quantitative Grade.
Bottom Line: As of this posting I consider Disney stock a B-rated Buy.