Monday, February 4, 2013

The Most Magical Investment On Earth - How Mickey makes Millions!

Yet when you ask most people how Disney makes its money, they’ll tell you theme parks, movies or toys. It’s time to dispel these misconceptions about Disney and let you know what makes this stock shine.

Mickey makes his  Millions"

First, let's examine how much revenue Disney generated from its six business segments over the past four years.

As you can see nearly half comes from it's Media, ABC, ESPN and the Disney Channel - and its subsidiaries. The proportion of this segment to its overall revenue has also steadily increased increasing over the past four years. This makes Disney a content provider on par with News Corporation (NASDAQ: NWS) or Comcast (NASDAQ: CMCSA).

Let’s compare the basic fundamentals of these three companies:

From this comparison, we can see that Disney wins out in the most important growth categories, and more importantly, it has far less debt than its rivals. News Corporation’s future growth can’t even be accurately measured by P/E and PEG since it is not currently profitable. Comcast is in better shape than News Corporation, but its debt levels are nearly the same.

Now let’s check on their revenue and earnings growth over the past five years.

The Rest of the Magical Kingdom

In addition to Disney’s booming media business, it’s two other key businesses - theme parks and movies - have been extremely promising.

Disney’s flagship theme parks account for nearly a third of total revenues. This percentage has also slowly risen, despite the global recession. Disney’s upcoming Shanghai Disneyland Park, which opens in 2015, will be the largest in Asia and will capitalize on a rising Chinese middle class. At its existing resorts, Disney has been able to raise ticket and room rates without adversely impacting sales volume.

Disney’s investments and overall revenue from movie franchises at its Studio Entertainment division has steadily declined over the past four years, as the company shifts production over to its subsidiary Marvel (and later on, Lucasfilm).

This is a great strategy, since Disney’s own movie studios have had a notoriously inconsistent track record of blockbusters and bombs. Mars Needs Moms and John Carter, two of its worst faring films in the past two years, lost a combined $300 million at the box office.

It's definitely time to let Marvel's multi-year franchises do the heavy lifting from now on.

In closing, Disney is a stock that has all of these things:

Globally recognized and loved brands
Owns the largest sports network in the world
Stable revenue and earnings growth
Diverse all-weather portfolio of products
Low debt compared to its industry
Proven pricing power at its flagship parks and resorts
While Disney has risen nearly 40% over the past twelve months, its low forward P/E suggests that it still has room to grow. Therefore, the "Happiest Place on Earth" might just be the "Happiest Place" for all your uninvested cash.


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