Académique Documents
Professionnel Documents
Culture Documents
Rick Settle
Analyst
Ticker
DIS
History of Success
Protected Exposure to Many Industries as a
Conglomerate
Dominance in Multiple Industries
Lucasfilm Acquisition
Increasing Dividend Yield
Underweight in Consumer Discretionary
Cons:
Exchange
Industry
NYSE
Entertainment/Media
Sector
Consumer Disc.
Classification
Market Cap.
52 Week Price range
$108.81B
$41.25-$60.46
Recent Price
$60.32
Current P/E
19.44x
14.5
2012 EPS
$3.17
$4.87
Dividend Yield
1.30%
Debt Rating
Beta
1.11
Altman Z-Score
3.57
Brief Overview1, 2
The Walt Disney Company (NYSE: DIS) is a
conglomerate
entertainment
company
that
operates across many business segments. The
company conducts operations in media networks,
studio entertainment, theme parks and resorts,
consumer products, and interactive media. The
company competes within the domestic and
foreign markets in all of its business segments.
Disney produces motion pictures, television
programs, and musical recordings, as well as
books and magazines. Its Media Networks
segment operates the ABC Television Network
and 8 owned television stations, the ESPN Radio
Network and Radio Disney Network, and 35
owned and operated radio stations. It also
produces and distributes ABC-. ESPN-, ABC
Family-,
and
SOAPnetbranded
internet
businesses. The Park and Resorts segment
owns and operates Walt Disney Resorts
domestically and abroad, along with the Disney
Cruise Line. The company was founded in 1923
and is headquartered in Burbank, California.
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PORTFOLIO CONSIDERATIONS 2, 11
Purchase
Date
VFC
11/16/2009
Number of
Cost
Current
Shares Per Share Price
Current
Market
Value
510
$51.43
$56.11 $28,616.10
220
Equity
Holding
Equity
Period
Holding
Equity YTD
Total Return Period Total Total Return
Equity
(%)
Return ($)
(%)
Percentage
23.43%
$6,146.05
6.54%
3.08%
137.00%
$32,333.60
32.36%
3.88%
The TCU Educational Fund currently has two holdings within the consumer
discretionary sector of the portfolio: Starbucks Corp (SBUX) and Vf Corp (VFC). The
EIF has owned shares of SBUX since October 2012 and has realized an equity holding
period total return of 23.43% or $6,146.05. The EIF purchased Vf Corp in 2009 and has
realized a 137% equity holding period total return. Vf Corporation designs and
manufactures apparel and footwear industries through brands such as The North Face,
Timberland, Vans, Reef, and Lee. Starbucks Corp operates as a roaster, marketer, and
retailer of specialty coffee worldwide.
The EIF current target for Consumer Discretionary stocks is 11.60%, we currently
only hold 6.96% of the portfolio in Consumer Discretionary stocks with SBUX and Vf
Corp; Therefore we are 464bps underweight in the Consumer Discretionary sector.
Also, we currently only hold 10.40% in Income stocks and 33.72% in stocks classified
as capital appreciation & income stocks. Our target for Income and Income/Appreciation
stocks is 25.0% and 35.0% respectively. As a whole we are 15.88% under our target of
stocks that pay dividends (when combining income and income/appreciation stocks).
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When a correlation analysis was conducted it was found that VFC has a 0.504
correlation with SBUX, therefore the two stocks are for the most part, not correlated.
With the introduction of DIS to the portfolio, there would be very little correlation
concerns as DIS has a 0.526 correlation with SBUX and a 0.536 correlation with VFC.
In terms of correlation, DIS would be a good fit within the current portfolio as it is not
correlated with our only other two holdings in consumer discretionary and provides us
protected exposure (due to its position as a congolmerate) to many other industries and
sectors.
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Industry Overview2,3,4
As a worldwide conglomerate, The Walt Disney Company operates within multiple
different industry segments. For investment analysis purposes, it is important to analyze
the current trends and themes within each segment that the company competes within.
For this reason, the industries that will be discussed include: the Media Network
Industry, Parks and Resorts Industry, Studio Entertainment Industry, Consumer
Products Industry, and Interactive Media Industry.
The Media Network Industry
Companies that compete within this industry engage in the creation and distribution of
content including audio recordings, films and television programming, and printed
material. Others within the space include companies that own and operate radio and TV
broadcasting stations, as well as over-the-air and cable broadcast networks.
Television Broadcasting in the US
Companies within this $37.6bn industry program and deliver audiovisual content to the
public via over-the-air transmission. This
industry excludes cable and satellite TV
and online content providers. The majority
of the revenue within this segment of the
Media Network is driven by corporate
advertising. Products offered by television
broadcasting companies include
syndicated news, dramas, sports
programing, comedies, syndicated game
shows, local programing, childrens
programs, as well as a small percentage of
other programs.
The industry is in decline due to the unsustainable nature of the business model.
Consumers are increasingly switching to cable TV, which has seen a surge in
popularity, profitability, and revenue. The three largest competitors within the space
(News Corporation, The Walt Disney Company, & NBCUniversal) hold over 45% of the
market. The mandated switch to digital transmission proved costly for broadcasters over
the past 5 years. Although with the costly transition, industry players begin demanding
that cable companies pay a fee for retransmitting broadcasters programming. As 90%
of households with televisions subscribe to cable, these fees enable companies within
this space to continue to generate revenue.
Cable Networks in the US
The Cable Network Industry within the United States is a mature industry that has seen
an increased amount of consolidation in recent years. It is a $15.9bn industry that has
seen annual growth around 1.7% from 2008-2013 and is expected increased growth
(2.9%) for the next 5 years. A trend within the industry has been new networks with
increasing channel offerings that have led to a larger number of consumers who are
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willing to pay for the additional content to their existing subscriptions. Rising disposable
income will enable consumers to spend more on services within the industry in the
years to come. One major roadblock of the industry is increasing competition from other
media outlets, most importantly, online streaming TV, which is cannibalizing traditional
TV viewership. To compete with these online streaming companies, cable network
providers are increasing their product offering and focusing on improving their website
development, social media interaction, and application technologies. The goal of the
cable networks is that they will be in constant contact with their consumer.
Revenues within the
industry are largely driven
by national and regional
advertising, which makes
up 33.6% of the industries
revenue. The other main
driver of revenue is
specialty TV program licensing which accounts for 26.8% of the revenues generated
within the industry; together the two make up nearly 60% of the revenues of the cable
network business. Some key economic drivers for the industry include the rising per
capita disposable income of consumers, amount of consumer time spent on leisure and
sports, technological change within the industry, and total annual advertising
expenditure. An important note to discuss is that the Cable Networks do not provide the
service directly to the end consumer, but rather to the Cable, Internet, & telephone
Providers and Satellite Telecommunications Providers, who in turn sell their content
packages to the end-consumer. This is important as occasionally you will see rifts the
content provider and service provider on pricing and content (Ex: This caused the
inability to watch TCU football games on MTN (The Mountain) for many years if you did
not have the cable service provider in Fort Worth that offered MTN); Meaning that the
service provider will contest rate increases or price changes of the content and will
either demand a pricing change, or choose to not include the cable network in their
offerings to the end consumer. In most circumstances, the content provider is able to
win the battle if their content is widely demanded by the end consumer (aka ESPN).
Parks & Resorts Industry
Amusement Parks in the US
Theme park companies operate mechanical rides, water rides, games, shows, themed
exhibits, refreshment stands and other attractions within the United States. This
$13.0bn industry is driven primarily by the state of the economy and travel-related
spending trends. With the decline of the domestic
economy (and global economy) in 2009, many players
within this industry experienced a large decline in
visitors as the economic downturn caused consumers to
be more selective of how they spent their discretionary
income. In 2009, 5.2% fewer people visited the United
States theme parks than in 2008. Due to the improving
economy since the recession, consumer spending has
driven an increase in park visitors. This trend is
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Some major trends within the industry include consolidation, increased corporate
services, green initiatives, and a rise in the number of boutique hotels. By providing a
wider array of corporate services such as technical support for meetings, catered
functions, printing, computing, and copying, resorts are looking to build and develop a
better relationship with their corporate consumers. With customers growing
environmental concerns, the hotel industry is developing many green initiatives.
Conservation efforts, such as washing linens only on customer request have been an
evolving trend in the industry.
Movie & Video Production
The industry produces and distributes motion pictures and videos. The industry
generates $29.3bn worth of revenue annually. This industry has weathered the
recession-related challenges that have occurred over the past 5 years (-2.8% growth
08-13), but is expected to have healthy growth (2.5%) for the next five years.
Aggressive implementation of 3-D technology has helped boost industry revenue 4.7%
in 2010 alone. The lack of availability of funding for movie production slowed industry
growth during the US recession, but through consolidation, large companies have been
able to benefit from economies of scale. Consolidation (Disneys Lucasfilm & Marvel
acquisitions), have decreased the number of firms competing within the industry. Over
the next five years, we can expect online revenue to play a growing role within the
industry. With the improving economy, the industry will benefit from increasing growth in
personal disposable incomes, which will boost consumer spending within the industry.
Action and adventure films hold
the largest percentage of the
market make-up at 46.7%,
which is followed by a distant
second with comedy films
(21.9%). This industry is a very
mature industry that is currently
undergoing some major shifts.
First and foremost,
technological change is altering
all facts of the industry.
Advances in the equipment and
storage increasingly improve
the resolution of the movies
being produced and watched. In addition, 3-D movies have stimulated box-office and inhome movie watching technology demand. Demand for movies have remained steady
during the past five years, but the ways in which they are watched have changed
dramatically. High-quality resolutions are becoming more prominent, and online sales
and streaming video are displacing physical movie sales. VHS has become virtually
extinct and the transition from DVD to Blu-ray has been slower than expected due to
increased production costs of producing Blu-ray discs relative to DVDs. Products like
the iPad and other tablets have been a large reason for the transition in movie watching
tendencies.
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Other
For our investment purposes, I have classified the consumer products industry and
interactive media segments as other industries, as these are the two smallest segments
of Disneys business that we are analyzing. Both are growing industries that are highly
correlated with consumer spending and individual disposal income. These industries are
widely diversified in their product offerings and can include a wide range of products.
For this reason, I have classified these industries as Other for our analysis as they are
not a key focus of the investment thesis.
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COMPANY OVERVIEW2,3,4,5,6
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Broadcasting
The Companys broadcasting business includes the ABC Television Network
(ABC), ABC Studios, Television Distribution and Domestic Television Stations. ABC has
affiliation agreements with 239 local television stations reaching 99% of all U.S.
television households. ABC produces its own programs as well as purchases from thirdparties the right to show other material on their program. Primetime programming
developed either by their studio or purchased from third-parties include such shows as:
Army Wives, Criminal Minds, Greys Anatomy, Private Practice, Cougar Town, and
Nashville, among others. This segment of the business also includes talk shows such
as Good Morning America, 20/20, The View, The Chew, and Nightline. Details for the
stations Disney owns is as follows:
The company also owns approximately 32% of Hulu, a business that aggregates
television and film entertainment and other content for consumer viewing on the
internet.
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Studio Entertainment
Theatrical Market
The Company produces both live-action films and full-length animated films. As
of September 29, 2012, Disney has released domestically approximately 980 full-length
live action features and 90 full-length animated features. These films are distributed and
marketed principally through their own distribution and marketing companies within the
United States theatrical market. Films that are released in the U.S. may be released
simultaneously in the international markets or experience up to a 4 month delay.
Home Entertainment Market
Domestic and international home entertainment distribution begins typically three
to six months after the theatrical release in each market. These can come in the form of
either physical (DVD and Blu-ray) and electronic formats. Titles are generally sold to
retailers (Walmart, Bestbuy, Netflix, Redbox, etc.). As of September 29, 2012, Disney
has approximately 1,400 active produced and acquired titles, including 1,000 live-action
titles, and 400 animated titles.
Television Market
Concurrently, or up to one month after the home entertainment distribution
begins, Disneys movies are licensed for use on a PPV/VOD basis to Movie and Cable
Providers, gaming consoles, internet, and mobile platforms.
Consumer Products
This segment of the company handles the
merchandise licensing operations for a wide array
for products which include: toys, apparel, home
dcor, stationary, accessories, food, footwear,
consumer electronic, among others. Disney
licenses characters from its film and television for
use by third-parties products in which Disney
earns royalties. Anything that is sold with one of
Disneys characters (Mickey Mouse, Cars, Toy
Story, etc.) is licensed through this segment. Also
included within the Consumer Products are the
publishing and retail parts of Disneys business.
Disney subsidy, Marvel Publishing, also published
comic books under this segment.
Interactive
The Interactive Games segment creates, produces, and distributes console
games and handheld games worldwide. This segment includes the online games that
are produced by the Company. Interactive derives revenues from a combination of
wholesale sales, licensing, advertising, sponsorships, subscription services, and ingame accessories. The segment also manages the Disney-branded mobile phone
business in Japan.
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Company History
In early 1923, Kansas City animator Walt Disney created a short film entitled Alices
Wonderland. After creating the short firm, Walt moved to Hollywood to join his brother
Roy. O. Disney. The original short firm was purchased for $1,500 per reel. That same
year, Walt and his brother Roy Disney formed Disney Brothers Cartoon Studio. In
January 1926, the Disney Brothers Studios name was changed to the Walt Disney
Studio.
After a failed all-cartoon series entitled Oswald the Lucky Rabbit, Disney came
up with the idea of a mouse character named Mortimer. The mouse was later renamed
Mickey Mouse, and the rest is history. Disney produced its first sound film, Steamboat
Willie, on November 18, 1928 at the Colony Theatre in New York. This was also the first
appearance by Minnie Mouse. Riding on the success of
the introduction of Mickey Mouse, Disney began
production of his first feature-length animation film in 1934.
Snow White and the Seven Dwarfs, premiered in
December 1937 and became the highest-grossing film of
that time by 1939. With the profits from the movie, Disney
financed the construction of their studio complex in
Burbank, California. The following year, Walt Disney
Productions had its first initial public offering. The studio
continued releasing animated shorts and features, such as
Pinocchio (1940), Fantasia (1940), Dumbo (1941), and
Bambi (1942).
On October 1, 1949, Walt Disney Music Company
was formed. The companys fist completely live-action feature, Treasure Island, was
released. In December 1950, Walt Disney Productions and The Coca-Cola Company
teamed up for Disneys first venture into television, the NBC television special, An Hour
in Wonderland. In October 1954, the ABC network launched Disneys first regular
television series, Disneyland, which would go on to become of one of the longestrunning primetime series of all time. The Emmy Award-winning show starred no other
than Walt Disney himself.
On July 17, 1955, Disney opened its first amusement park, Disneyland, in
Anaheim, California. Despite a shaky start, the amusement park eventually took off and
is still in operation today. The park introduced the first monorail system to the United
States. Later that year, in October, the Mickey Mouse Club debuted on television. While
they ventured into the amusement park business, the firm studio stayed busy as well,
producing a number of popular films including: Lady and the Tramp (1955), Sleeping
Beauty (1959), One Hundred and One Dalmatians (1961), and Disneys most
successful film of the 1960s, Mary Poppins. The movie was one of the highest grossing
movies of all time and received five Academy Awards.
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that are focused on bringing the arts and humanities specifically to babies. The
company sold the Anaheim Angels in May of 2003 to Angels Baseball, L.P. On October
1, 2005, current CEO Robert A. Iger became the president and CEO of The Walt Disney
Company. In late 2005 and early 2006, Disney became the first to license TV episodes
for download on Apples iTunes Music Store and the first to offer full-length movies for
sale vie digital download, on Apples iTunes platform with High School Musical. Later in
2006, all of Disney feature films would be made available of iTunes. On May 5, 2006,
Disney acquires Pixar Animation Studios.
On Decemebr 31, 2009, Marvel
Entertainment joined the Disney Family. In
2010, Disney realized that continuing
investment in new Miramax movies wasnt
necessarily a core strategy of theirs, therefore
they sold Miramax in December of 2010 to
Filmyard Holdings for $663 million. On October
30, 2012, Disney announced plans to acquire
Lucasfilm for $4.05 billion with plans of
releasing Star Wars Episode VII in 2015. This
acquisition was approved by the FTC and
finalized on December 21, 2012.
Management
Robert A. Iger is Chairman and Chief Executive Officer of
The Walt Disney Company. Prior to his roles as Chairman,
he served as President and CEO from October 2005, and
President and Chief Operating Officer from 2000-2005. Mr.
Iger joined Disney senior management team in 1996 as
Chairman of the Disney-owned ABC Group. He began his
career at ABC in 1974. Iger has been awarded numerous
honors during his many years of leadership. He has been
named one of Fortune magazines 25 Most Powerful
People in Business, one of the Top Gun CEOs by Forbes,
one of the Best CEOs by Institutional Investor Magazine.
Robert A. Iger; Chairman/CEO
Mr. Iger joined the Apple board of directors in
November 2011 and became a board member of the U.S.-China Business Council in
June 2011. In June 2010, President Barack Obama appointed him to the Presidents
Export Council, which advises the president on how to promote U.S. exports, jobs and
growth.
The Board of Directors includes such members as former President & CEO of
Starbucks Corporation (2000-2005), Orin C. Smith; former President of Global Business
Units of P&G (2007-2009), Susan Arnold; Chairman of Global Affairs of The Estee
Lauder Companies, Fred H. Langhammer; President and CEO of Potbelly Sandwich
Works, Aylwin B. Lewis; current Chief Operating Officer of Facebook, Sheryl Sandberg;
among many other highly respected and highly seasoned business executives.
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Recent Performance 2
The stock of the company has performed remarkably well throughout the past two
years, gaining over 47% in capital appreciation. With that being said, the stock is trading
slightly off its 52-week high of $60.73 at $60.55. This should be a consideration to the
purchasing of the stock which will be discussed below.
The stock has performed considerably well YTD, and is up 18.49%. This is most
likely due to a couple different factors. First and foremost, the entire market has
performed very well YTD (S&P500 is up over 10% and DJI up over 13% TYD), and the
consumer discretionary sector has outperformed the overall market. Secondly, Disney
acquired Lucasfilm at the end of 2012, and consumer sentiment has been very
favorable around the acquisition. The acquisition was announced on October 30, 2012
and later approved by the FTC and finalized on December 21, 2012. Since the
announcement of the acquisition, the stock is up 23.27%, and since the approval of the
FTC, the stock is up 21.10%
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A graph can be seen below for the performance of the stock since the
announcement and approval of the Lucasfilm acquisition.
Approval of Lucasfilm
Acquisition
Announcement of
Lucasfilm Acquisition
Relative to our other two holdings within the consumer discretionary sector,
Disney (DIS) has outperformed both SBUX and VFC. This could be due to the trends
discussed previously, or company specific reasons with our other two holdings. The
chart below shows a 1 year performance for each of our holdings. Something important
to note is that we purchased SBUX in October 2012, therefore we have actually realized
a gain thus far with the position, despite its 1 year underperformance. This chart also
shows the lack of correlation between our two holdings and potential portfolio addition of
DIS.
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NewsCorp
Time Warner
Industry
2011
10.4%
17.7%
5.7%
10.1%
2012
11.8%
19.0%
6.7%
12.2%
2013
13.4%
21.0%
7.6%
13.5%
(NWS)
11.65%
N/A
5.79%
14.60%
(TWX)
14.31%
45.66%
4.44%
10.09%
Median
10.64%
20.53%
5.92%
10.62%
1.11
0.77
1.14
0.77
1.07
0.77
1.92
1.69
1.35
1.04
1.78
1.2
0.32
14.75
0.35
17.89
0.34
18.78
0.55
5.0
0.66
4.57
0.82
31.06
0.55
34.65
0.57
32.71
0.56
32.01
0.57
N/A
0.42
8.07
0.57
14.16
17.5x
1.77
10.58
14.5x
0.96
9.92
15.9x
2.13
11.21
20.09
2.61
18.4
17.66
1.85
16.42
21.66
3.71
14.34
10.4%
0.55
1.76
10.1%
11.8%
0.57
1.83
12.2%
13.4%
0.56
1.79
13.5%
11.7%
0.57
2.25
14.9%
14.3%
0.42
2.27
13.6%
10.6%
0.57
0.84
5.1%
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company is a conglomerate and we cannot point directly to one area that may tell us
which of the two factors it is.
DuPont: The Company has been very successful in generating returns with reasonable
levels of leverage. DIS has outperformed its competitors and the industry average
when it comes to the DuPont analysis. This is a great illustration of the strength of DIS
in comparison to its competitors and the industry as a whole. ROE is trending upward,
which is a favorable sign, as is profit margin.
Valuation: These ratios reveal the strength of DIS and show why it is more valued than
its competitors. The P/E ratio is perhaps one of the best ratios to illustrate this fact. The
P/E of the company is below that of their competitors, which could mean a couple
things: either that the company is cheap relative to its peers or that there are less
prospects of growth. It is difficult to compare DIS to a set group of peers, as the
company competes against a wide range of companies. The price to book is low, which
could show that the stock is undervalued or that there is something fundamentally
wrong with the company (which certainly is not the case), so must mean that relative to
the industry, the stock is undervalued.
Altman Z-Score: With a Z-Score of 3.57, there is no concern of insolvency.
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RECOMMENDATION
History of Success: The Walt Disney Company is a household name that has a
long history of success. Despite many changes in management and leadership,
the company has continued to perform considerably well. I see no reason to
suspect that this would change. The company has been long considered as
shareholder friendly and looks to return shareholder wealth through accretive
strategic acquisitions, stock repurchases, and dividends.
Increasing Dividend Yield: DIS currently has a 1.20% dividend yield which
management has suggested will increase in the coming years. The company has
raised dividend 50% and 25% respectively in 2012 and 2013.
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CONS TO RECOMMENDATION
Trading at or Near 52-Week High: The stock has been selling at its all-time high
in recent weeks. Simply in terms of timing, it may not be the most ideal time to
purchase the stock given the current run of the overall market YTD.
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ANALYST RECOMMENDATIONS 10
Analyst Recommendations (S&P Capital IQ)
Strong Buy
Buy
Hold
Underperform
Sell
Total
Current
1 Month Ago
2 Months Ago
3 Months Ago
6
13
10
0
6
13
10
0
6
13
10
0
6
12
11
0
29
29
29
29
PROFORMA ASSUMPTIONS
Income Statement
Revenues: Forecasting revenues out into the future, I evaluated the growth prospects
of the industry as well as the historic growth for the company. I broke out the revenues
for the different business segments and forecasted them on a line by line basis. Overall,
my forecasts estimated revenue growth at 6.13% for 2013, 6.77% growth for 2014, and
7.86% for 2015.
Operating Expenses: Operating expenses were modeled as a percentage of top line
growth. Operating expenses historically have proven to be relatively stable in
comparison to growth or decline in revenues.
Taxes: I modeled taxes in the same manner that I modeled operating expenses, using
a 3-year moving average of historical tax expense growth rates. The projected tax
expenses were in line with those of the prior three years.
Dividends: As Disney is end of fiscal year Sept. 29 th, I had a management number for
2013. The company has taken a strong position to continue growing their quarterly
dividend and has grown their dividend Y/Y by nearly 25%. I expect dividend payout to
increase based upon management discussion and a ramp up in dividends in the past 2
years.
CapEx: I brought the capital expenditures down slightly in years 2013, 2014, and 2015.
Although they recently acquired Lucasfilms, I expect them to realize this CapEx across
multiple years, therefore not taking a large CapEx hit in 2013.
Net Debt: Due to the growth capital expenditures of the company, and its aggressive
nature to fund through additional debt, I projected net debt growth based upon a moving
average of a 6 year span dating back to 2006. While this debt will be growing, I also
took into account the repayment of debt that matures in 2012, 2013, and 2014.
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VALUATION ASSUMPTIONS
Risk Free Rate: 2.99%, the current yield on the 30 year US Treasury bond (as of
4/10/2013).
Market Risk Premium: The EIF market risk premium of 5.7% was used.
Beta: The regression that I ran provided a beta estimate of 1.09 which was pretty much
in-line with the other beta estimations. I chose to use a beta estimate of 1.06 which I
felt reflected the amount of risk associated with DIS. My rationale behind this beta
estimate was in large part due to the factor that they are in multiple different markets,
and are becoming more and more diversified, therefore being more and more directly
related to the market.
P/E Multiples: I forecasted P/E ratios as 17.5x, 16.0x, 14.5x for the next three years. I
used the median of analyst forecasts for 2013E as I felt that my forecasts were in line
with many of the analysts. My P/E multiples for 2014 and 2015 are above those of many
of the analysts as I felt that with increased growth and positive street sentiment about
the companys recent M&A activity that it will drive the P/E multiple up slightly.
EPS: My EPS forecasts are $3.51, $4.08, $4.87 for 2013-2015 respectively. My forecast
numbers are above many of the analysts numbers as I feel that the company will
perform better in the three years to come due to the improving economy and benefits of
recent M&A activity.
Stock Price: I used the stock price as of close on 4/12/13 of $60.55.
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Despite getting top ratings during the Super Bowl, CBS has left many wondering
whether the entertainment company made the most of its ad time. Some felt that it
spent too much time advertising its own programs instead of putting in ads that would
have gone for $3.5 to $4 million per placement.
The Street has also had a relatively tepid outlook on CBS Corporation (NYSE:CBS).
Zacks lists the broadcasting company as neutral with a price target of $42. Other
research companies also didnt raise their ratings. Barclays and UBS are the two
biggest exceptions, which have raised their price targets to $46 and $45 with an
equivalent "buy" rating. But the stock is already at around $43, so there is not much
upside at this point. The stock is also at its 52-week high after rising 53.8% from the 52week low.
With a free cash flow yield of less than 4% and a PE multiple of 18.5, I find CBS
Corporation (NYSE:CBS) relatively expensive. I encourage avoiding the stock,
especially since 5-year has been in the low single-digits and the return on invested
capital is 100 basis points below the industry average.
Closing thoughts & stock fundamentals
Disney has compelling stock fundamentals. Despite being at its 52-week high, it is
reasonably priced at 18.6 times past earnings versus an industry average of 19.5. In
addition, it is generating a decent amount of return on invested capital at 10.9%. 17 out
of 25 reporting analysts rate the stock a "buy" or better, and no analyst rates it a "sell."
Despite my criticism of CBS, it should be noted that it is generating an even higher
return on invested capital at 11.5% for an even cheaper 18.2x multiple.
For a risky value play, I would consider also adding Time Warner Cable
Inc (NYSE:TWC) into the mix. The firm only trades at 13 times past earnings but still
has strong trends. EPS grew by a rate of more than 13% over the past 5 years, and it is
expected to grow by a rate of over 11% over the next 5 years. If these estimates prove
accurate, the multiple will either have to expand right away to generate significant
annualized returns, or the stock will produce, on average, 10%+ annual returns. The
consensus price target is at around a 15% premium to the prevailing price.
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any serious aficionado knows, there were always supposed to be nine. But how would
Disney assess the value of an imaginary galaxy? What, for example, was its
population?
As it turned out, Lucas had already done the cataloging. His company maintained a
database called the Holocron, named after a crystal cube powered by the Force. The
real-world Holocron lists 17,000 characters in the Star Wars universe inhabiting several
thousand planets over a span of more than 20,000 years. It was quite a bit for Disney to
process. So Lucas also provided the company with a guide, Pablo Hidalgo. A founding
member of the Star Wars Fan Boy Association, Hidalgo is now a brand communication
manager at Lucasfilm. The Holocron can be a little overwhelming, says Hidalgo, who
obsesses over canonical matters such as the correct spelling of Wookiee and the
definitive list of individuals who met with Yoda while he was hiding in the swamps of
Dagobah.
Uh-oh. Walt Disney (NYSE: DIS ) is killing part of the Star Wars franchise it acquired in
October for $4 billion. The good news? Like Obi-Wan Kenobi, the dead will rise soon
enough, and in perhaps a more powerful form.
Specifically, Disney has closed 31-year-old game-development division LucasArts and
laid off some 200 employees who worked there, The Wall Street Journal reports. New
Star Wars universe games -- presuming any are under consideration -- will be published
elsewhere.
It's a good move, says Tim Beyers of Motley Fool Rule Breakers and Motley Fool
Supernova in the following interview with The Motley Fool's Erin Miller. Researcher NPD
put LucasArts' revenue at just $55 million last year, down sharply from $175 million in
2006.
What's more, Tim says, Disney is the world's largest brand licensor and as such could
extract good terms from the likes of Electronic Arts (NASDAQ: EA ) and Activision
Blizzard (NASDAQ: ATVI ) , both of which have long, successful histories with
developing games around licensed brands. The possibility of such a deal may help
explain why Disney stock reached another new high this week.
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Are you more bullish on Disney's prospects after seeing this news? What about
Activision and EA? Please watch this short video to get Tim's full take, and then leave a
comment to let us know whether you'd buy or sell Disney stock now, and why.
It's easy to forget that Walt Disney is more than just the House of Mouse. True, Disney
amusement parks around the world hosted more than 121 million guests in 2011. But
from its vast catalog of characters to its monster collection of media networks, much of
Disney's allure for investors lies in its diversity, and The Motley Fool's premium research
report lays out the case for investing in Disney today. This report includes the key items
investors must watch as well as the opportunities and threats the company faces going
forward.
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Sources
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Thewaltdisneycompany.com
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The Motley Fool
Business Week
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S&P Capital IQ
Thomson Reuters FirstCall
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