Tuesday, July 2, 2013

Disney Better And Better - 60th Anniversary of Disneyland 2015


In 2015, The Walt Disney Company (DIS) plans to celebrate the 60th anniversary of Disneyland. The theme park business will be expanded with the opening of a new huge Disneyland in Shanghai and the addition of a Avatar-theme section at a cost of $500 million to Walt Disney World's Animal Kingdom. The theme parks will attract the usual large crowds but looking to the future, the film division is poised to do extremely well in 2015.

The Disney film business
The Avengers was a massive hit which surprised industry experts by earning $623 million domestically and a total of $1.5 billion over the world and its sequel should also be a major hit. The 2015 film pipeline has a large number of potential box office successes. The acquisition of Marvel Entertainment and Lucasfilms is likely to pay off with the release of new sequels to The Avengers and Star Wars in 2015. Most film studios would consider themselves fortunate if they were able to release one movie like The Avengers but Disney has two potential blockbusters in Star Wars: Episode 7 which could be released a few weeks after The Avengers 2. Finding Dory, the sequel to Finding Nemo, will release at Thanksgiving. Finding Nemo is probably the most popular of Pixar's animated films, so Disney could well be looking at a domestic gross in excess of $300 million for the sequel. Finally, Disney will release the fifth film in its Pirates of the Caribbean series in July 2015. It should be noted that the film business only contributes around 14% of the revenues though this will doubtless increase in the future.

First quarter financials
For the first quarter of 2013, Disney reported a growth in revenues from $9.62 billion to $10.55 billion and a net income growth from $1.22 billion to $1.62 billion. Diluted EPS jumped from $0.63 a share to $0.83 per share. Despite popular belief that the company is dependent on theme parks for revenue growth, media network revenues grew by 6% from $4.69 billion to $4.95 billion, parks and resorts by 11%, studio entertainment by 3% and consumer products by 9%. The 32% increase in EPS has been attributed to better performance in all the operating segments as well as a lower income tax rate because of positive adjustments relating to pre-tax income in previous years. The increase in the media networks business was driven by a 13% increase in fees from affiliates at ESPN. The only negative feature was the 7% decrease in cash generated from operations though this can be explained by increased investments which reached a total of approximately $1.2 billion.

The investment thesis
Despite the skepticism that surrounds large acquisitions, most of Disney's major acquisitions make a lot of sense. The acquisition of Pixar Animation Studios for $7.4 billion, Marvel Entertainment for $4.24 billion, and Lucasfilms and the Star Wars franchise for $4.05 billion will pay off for Disney in a big way. All these companies have impressive intangible assets that could add value to Disney for a long time to come. And there is the jewel in the Disney crown, ESPN, which accounts for more than 60% of its operating profit and dominates the college and pro football scene which is essential for a sports broadcaster to succeed. Even better, despite the initiatives of Fox Sports, there is no formidable competition as yet on the horizon.

The bottom line
The company is trading at $63.15 currently compared to an analyst mean target price of $72.00 and a median target price of $73.00. I believe that the stock has the ability to appreciate much more by 2015 and with a marginal, but increasing dividend, should be considered for a core position in an investor's portfolio.

Read More.... http://seekingalpha.com/article/1530922-disney-keeps-getting-better-and-better?source=email_rt_article_readmore


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