Thursday, February 7, 2013

Studio Entertainment A Significant Factor For Disney In 2013

Two profitability factors affecting Disney's stock value in 2013 will be Parks and Resorts revenue, with a focus on MagicPlus, and product sales from the Lucasfilm acquisition.

In 2013, Parks and Resorts revenue should continue increasing at higher quarterly growth rates due to park expansions as well as substantial investment in MagicPlus. Expenses from these investments are decreasing and earnings realization is increasing, which should greatly help 2013 profit margins in the business segment.

According to James Rasulo, Chief Financial Officer, attendance at domestic parks was up 4% in the first quarter and per capita spending increased 6%. Rasula expects similar trends to continue through the remainder of the year.

Second quarter guidance from Rasulo also noted the inclusion of the Easter holiday which adds additional revenue growth potential for the quarter.

Income generation from the Lucasfilm acquisition is also a positive earnings factor for Disney. Studio Entertainment revenue should see increases from the Star Wars franchise as well as other Lucasfilm products. Additionally, Consumer Product sales should improve from the demand for Star Wars affiliated products.

In 2012, the company's positive earnings results led to a stock return of 32.77%. Continued earnings momentum in 2013, specifically from increased Parks and Resorts revenue, should help the company's stock continue its upward trend.

Given the current outlook and earnings growth potential, Disney appears to have a one-year price target1 of $51.35, closing slightly above the price target on February 5 at $54.29.

Given the overvalued price comparison, investors considering Disney stock in 2013 should closely watch Lucasfilm related product developments. If Lucasfilm related products are highly successful the stock could have greater upside potential in 2013 reaching a high-end price target of $56.31. If Lucasfilm product sales are delayed and operating margins in the Studio Network segment decrease further, then the stock could retreat to a low-end price target of $48.87.


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