Walt Disney Company (DIS) is due to report earnings this week. For holders of DIS stock, such as myself, there can be mixed feelings about earnings reports. In my case, Disney earnings only are relevant if they miss repeatedly by a wide margin. That’s because I consider DIS stock to be a “forever hold”. I have no plans on selling, especially since CEO Robert Iger had his contract extended to 2018.
Other investors may watch more closely, but my expectations are Disney earnings will be on target, as they generally are with DIS stock.
DIS earnings, from an EPS standpoint, are expected to come in at 87 cents per share, or an increase of 13% year-over-year. If DIS stock delivers, FY14 in its entirety will have yielded EPS of $4.30 per share, up from $3.39 last year, or a 27% YOY increase.
These results are expected to include a $700 million (6%) increase in revenue to $12.3 billion. Analysts expect DIS stock to generate $48.7 billion in revenue for FY14, up from $45 billion last year — an 8.2% increase.
What to Expect From DIS Stock
We should see powerhouse results from the parks and resorts segment, as travel in general continues to boom in this weak recovery.
We haven’t seen a ton of new content released from Marvel lately — the studio’s latest was Guardians of the Galaxy in August — but there’s a lot to look forward to. Avengers: Age of Ultron, the sequel to the $1.5 billion blockbuster, comes out in May, and Marvel just announced nine new films to be released between 2016 and 2019. The studio also made deals with Netflix (NFLX) to produce content, and ABC is launching another franchise, Agent Carter to join Agents of S.H.I.E.L.D.
Plus, the fact that Marvel could turn a loony concept like Guardians of the Galaxy into a good film, and a commercial hit, should tell you that this single element of Disney will be working for decades to come.
But Disney has never rested on its laurels. There have always been naysayers about the multi-billion dollar acquisitions of Pixar, Marvel and Lucasfilm. They’ve been proved wrong time and time again. Each of these entities has been permitted to do what it does best — deliver great content to its fans.
Watching Disney XD with my kids, I’m now seeing crossovers between things like Star Wars and Phineas & Ferb, and Disney live action characters being animated so they can interact with Marvel characters. It’s synergy on steroids, and its all good for DIS stock. This is just going to continue.
So if Disney should miss, I would be buying on any dip because DIS stock is the single greatest entertainment entity in human history. Nothing can match it.
Worried about valuation? I’m not. At Friday’s close of $91.46, the stock trades at 21x estimates. Analysts expect 5-year annualized earnings of 17.13%, and it pays a 0.9% dividend, for a total 5-year target of 18%.
I give DIS stock a 20% premium for its monster free cash flow, $6.1 billion in the TTM, its $7 billion of cash which it can use to do anything it imagines … not to mention its amazing global brand name.
So, yeah, trading at 21x earnings make DIS stock a fairly valued stock to me. That means you should climb in and expect to make 18-20% annually.
As of this writing, Lawrence Meyers was long DIS. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets at @ichabodscranium.
