This installment of Using the Value Line Report will highlight The Walt Disney Company’s (DIS -Free Disney Stock Report) fabled reemergence as a pillar in the global media arena, as well as the investment community, which has been marked by the stock’s impressive price gains over the past decade. Indeed, the past 10-plus years have seen the equity’s most notable momentum since it joined the Dow in May of 1991.
In particular, the last five years have been stellar, as the stock has risen some 450% since early 2009. This meteoric ascent is displayed by the price chart located in the Graph section of the page. Moreover, it comes as no surprise that scanning across the page to the bottom right corner offers further evidence to support the superior momentum of Disney’s shares, as the Financial Strength box tells of the equity’s superlative score for Price Growth Persistence (100 out of 100).
Not since the earlier years of the Michael Eisner era (Chairman and CEO from 1984 – 2003), when such iconic animated features as The Little Mermaid and The Lion King hit the big screen and its theme parks and television networks (ESPN, ABC, etc.) underwent considerable expansion, has the company enjoyed such notable success at the box office, as well as in its media ventures. Although the entertainment bellwether faced some creative and operational struggles in the late ‘90s, which placed some downward pressure on its shares, DIS was able to rally to new heights with the turn of the new millennium. The bottom truly fell out, however, not long after the tech bubble burst and the tragedy of 9/11 halted vacation travel and plunged the U.S. economy into recession. During that span, the stock lost more than two-thirds of its value from a mid-2000 peak of $43.88 to a mid-2002 trough of $13.48.
After a tumultuous period of ownership and managerial discord between 2003 and 2005, Eisner was succeeded by current Chairman and CEO Robert Iger. Under Iger’s stewardship, Disney has worked vigorously to reestablish itself at the forefront of the animated and live-action film industry, as well as fortify its presence in the global theme park business. Indeed, a number of key and bold acquisitions (Pixar, Marvel, Lucasfilms, etc.) have helped the company to solidify its position as a global leader in diversified entertainment.
Its slew of smash blockbuster releases of late, including the Iron Man series, the second installment of Captain America and the animated hit Frozen, are just a few of its recent triumphs in the film arena. Now, with the addition of the Star Wars franchise to its vast vault of theatrical assets, it would appear that the company is poised for several years of respectable revenue growth. Its film endeavors are just one aspect of its prospective growth drivers. Its television networks have been highly successful, too. Specifically, ESPN continues to generate market-leading ratings and sizable profits as the premier sports broadcasting network in the United States. Furthermore, Walt Disney Resorts have demonstrated impressive revenue and operating profit gains, thanks to record worldwide attendance of late.
Taking all of the aforementioned factors into account, it is no wonder that the company’s earnings growth has been consistently firm. Looking at the historical financial data in the Statistical Array, it is evident that the only instances when Disney’s share net faltered over the past 15 years or so were in the years directly following recessionary periods (2001-2002 and 2007-2009). Still, profit advances recovered quickly in each of those situations. In addition, scanning over to the Annual Rates box reveals that the company’s cash flow, earnings, and dividends have expanded at double-digit rates over the past 10 years. This indicates that not only is the company sustaining strong profit gains, but it is also returning a portion of these profits to its shareholders in the form of increasing income distributions.
Moreover, with an exemplary Earnings Predictability score of 90 out of 100 and the highest Financial Strength rating of A++, it stands to reason that analyst Orly Seidman’s Financial Estimates out to late decade call for double-digit cash flow, earnings, and dividend growth rates over the next three to five years. Indeed, the company’s solid balance sheet and financial flexibility should support continued strategic initiatives across the board. Ms. Seidman reinforces this notion in the Analyst Commentary, when she says, “Disney is putting its cash to good use.” Furthermore, she goes on to note that, “thanks to the benefits Disney is reaping from the Marvel and Lucasfilms acquisitions, it may eye other accretive additions.”
Finally, from a stock-price performance perspective, although the Timeliness Ranks box in our last report (2/7/14) suggests that the equity is a 3 (Average), the rank has actually been bumped up a notch to 2 (Above Average) as of 4/11/14. This suggests that the equity price will likely outpace the broader market’s averages over the next six to 12 months. On the downside, however, the aforementioned price strength already reflects most of the revenue and profit growth we project over the pull to 2017-2019. In fact, at just over 19x earnings, the P/E Multiple is historically high, offering limited room for further capital appreciation in that span. Hence, at present, this stock should spark more appeal among momentum-driven accounts. Nonetheless, we would recommend that even those wishing to buy and hold wait keenly on the sidelines for a more appropriate entry point, as we believe DIS shares to be a noteworthy investment option for any portfolio.
At the time that this article was written, the author held no positions in any of the companies mentioned.