The Walt Disney Company (DIS - Free Disney Stock Report) is a huge media conglomerate. It operates media networks, including ABC and ESPN, as well as parks and resorts, most notably the world famous Disneyland and Walt Disney World, and a cruise line. On top of this, there is a film studio, which boasts high-profile names like Pixar and Marvel, a media department, and a division focused on consumer products. A quick glance at the Price Chart on our latest report dated August 7, 2015 shows that this equity has been on a steadily inclining trajectory basically since late 2011. The company has been firing on all cylinders for much of that span, and the share price peaked at an all-time high just north of $122 a share in August. The Value Line page displays the High/Low price difference for each year at the very top of this Graph. However, when a bout of volatility hit the market in late August, this Dow stock was among the leading decliners; DIS was down more than 15% last month. Using the Value Line page and any new information we have on hand, we will take a look to see if Disney just got caught up in the market turbulence or if there actually is a reason for long-term investors to change the channel.
Shares of Walt Disney have dominated the headlines over the last two-plus weeks. Third-quarter results were slightly below consensus expectations, but nothing that should have triggered a dip of this magnitude. Weaker advertising sales at the ESPN network took much of the blame for the shortfall. The sports-based channel is dealing with some issues, as costs are trying to be reined in given the huge sums of money laid out for premium sports programming like NFL football and NBA basketball games. Moreover, a trend towards “cutting the cable” is gaining a bit of momentum in pop culture. This is when a subscriber makes moves to eliminate a sizable cable bill by cancelling that company’s package and piecing together a platform of cheaper alternatives; Netflix (NFLX), Hulu, and other streaming-video sites are the most popular selections in the current market. This scenario has led to serious downgrades across Wall Street, on a number of traditional media concerns, and Disney has felt the brunt of it. We feel, however, that the long-term impact on DIS will be muted, as people love programming and sports fans are at the top of that list. That said, we like these shares trading at recent prices around $100.
In the top left corner of our page are the Timeliness and Safety ranks of the stock, and Disney receives our Highest: 1 designation for both of these categories. Too, in the lower right-hand corner is the Financial Strength Box. Here, it is evident that the company has a strong financial backing and it is better positioned that many of its peers to weather any potential storm. The Financial Strength rating on Disney is A++, our best possible grade. Also of note, Price Growth Persistence and Earnings Predictability are 100 and 90, respectively, with 100 being the apex of our scale. Yes, in terms of actual dollars, the mouse carries a high level of debt, but the company’s debt-to-capital ratio stood at just 20% at the time of its most recent quarterly report. That amount is more than manageable by Walt’s astute management team.
Taking a look further under the hood, we move across the page to the Earnings Per Share Box on the lower left-hand side. This shows at that the bottom line is on pace to rise more than 17% on an annualized basis in 2015 from $4.26 to $5.00. Moreover, next year, even with the aforementioned troubles now starting to be factored in, 10% year-over-year earnings growth should be doable. One notch up is the Quarterly Revenues Box. The quarterly top line should exceed $13 billion in the final period of 2015 and then eclipse the $14 billion mark to kick off fiscal 2016 (years end on the Saturday closest to September 30th). In sum, yearly sales of greater than $50 billion should be on tap beginning this year. Out to 2018-2020 we anticipate that figure will grow to roughly $65 billion. That’s an annual revenue growth rate north of 6%, an enviable amount for any company with Disney’s scale and maturity.
Elsewhere, we think the dividend will grow steadily out to late decade, and be well-supported all the while. As noted in the August report by Value Line’s star analyst Orly Seidman, Disney had paid a single yearly dividend in mid-January in years past, though, the company is now switching to a semi-annual approach. This alteration is already depicted in the Quarterly Dividends Box below the aforementioned Earnings Box. Ms. Seidman goes on to point out that extrapolating the recent $0.66 payout to twice a year results in a 15% hike versus 2014’s dividend. True, the yield is only a tick north of 1%, but this modicum of current income sweetens the pot for this blue chip.
When you get down to brass tacks, sports fans need their ESPN and there is no way around it. Many will contemplate “cutting the cord’’, but the number that will actually attempt it should be far less. Add to this the enormous success that DIS is having in a plethora of other areas and we think this Dow equity is a prime selection for both momentum and long-term accounts, particularly at its currently lowered quotation. And again, the rising dividend makes DIS that much more attractive.