The Miss Congeniality of the Dow
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It's not unheard of for disparate companies to join in common cause for any number of purposes like cross-promotion, charitable causes, research. Just off the top of my head: General Electric partners with Chesapeake Energy, Harley-Davidson partners with Rockstar Energy Drink, and Big Pharma partners up with each other and small biotechs all the time.
But the happiest place on earth is also the friendliest: the C-suite at Walt Disney (NYSE: DIS). Go ahead and Google (or Bing) "Disney partners with"... and there are over 19 million results for Bing and 217 million results for Google but let's not get into that. Just the top results include partnerships with Google, Netflix, Vera Bradley, Jakks Pacific, HGTV, New Balance Shoes, Sephora, McDonald's, Anheuser-Busch and literally hundreds more public and private companies.
And it's not just companies, as Disney partnered with the First Lady to make the Happiest Place on Earth a healthier place to eat. The US State Department has consulted with Disney for help in improving traffic at its consulates and bringing more tourism to the US. Disney's ESPN has also partnered with Brand USA to promote travel to the US in European markets.
What makes Disney so darn friendly?
Chairman and CEO Robert Iger has nurtured a culture of cooperation that very few companies can match. Although Disney has many moving parts including the parks, the entertainment division including cash cow ESPN, the cruises, the branding and merchandise, Iger's management style has brought together what was a very fractured and almost troubled company into harmony.
That period of disquiet when Michael Eisner was Chairman and CEO and had the support of a Board filled with cronies like his lawyer, the principal at his children's school, and other questionable seats was one which ended when Iger took over in 2005. Since then shareholders have enjoyed over a double with double-digit EPS growth year over year.
Even a controversial move to separate the Chairman and CEO proposal and an executive say on pay were voted down by grateful shareholders at their annual meeting on Mar. 6 displaying a swell of approval for Iger.
Of course when you are one of the most loved and recognized brands in the world so much so that even preliterate toddlers can recognize your logo, everyone wants to be your best friend. And when your brand is this well respected for quality and family friendly entertainment and products expect the world to come knocking at your door.
Frankly, I imagine the list of companies and organizations they have to turn down is geometrically longer. They're probably as sweet as a Disney princess when rejecting them, however.
Is the Street still sweet on Disney?
At that same shareholder's meeting Iger announced, "All of this success across so many of our businesses led to another record financial performance for Walt Disney. In Fiscal 2012, we increased revenue by 3% to a record $42 billion, which led to a record $5.7 billion in net income, up 18% over the year before. And our earnings per share were up 24%, setting a new record of $3.13.” And why not after Iger's most recent big wins of Marvel and Lucasfilms.
Disney hit another all time high on Mar. 11 of $57.66 so that it now trades at a 14.86 forward P/E with a 1.30% yield. With a current PEG of 1.35, Disney may be getting too big for Goofy's britches and the median analyst price target of $62.50 leaves only 10% upside.
Another reason the Street may cool on Disney is that Iger plans to leave in 2016. If it performs like McDonald's did after their long time CEO left DIsney's stock price glory days may be halted. In the last month three analysts have moved from hold to buy for 13 buys while strong buys remain virtually unchanged at 6 analysts and there are no underperforms or sell recommendations.
What about the other contenders?
Disney's closest diversified entertainment rival in size is News Corp (NASDAQ: NWS), which just announced a challenge to valuable asset Disney's ESPN with a new Fox sports network. A Motley Fool roundtable video clarifies how much of a threat this is to Disney. News Corp does not have the parks or resorts nor the branded merchandise kicker.
Like Disney's other rival, Time Warner (NYSE: TWX), all three sport similar P/Es of 18 and change. Time Warner hit a 52-week high itself on Mar. 11 as did News Corp. All three are benefiting from the content is king trend that is also raising the share prices of CBS and Comcast. Time Warner has one advantage over Disney and that is it yields 2.00%. News Corp yields barely 0.50%. But analysts expect slightly better EPS growth of 12.28% over the next five years for Disney than Time Warner at 12.19%. Time Warner is almost half the size of Disney with a market cap of $53.53 billion to Disney's $104.10 billion.
With News Corp currently involved with its spinoff of its publishing division, earnings estimates are hard to come by as well as market sentiment. The British phone hacking scandal plods on interminably and the most bullish catalyst seems to be the Fox 1 sports network.
News Corp CEO Rupert Murdoch still plans to have a hand in both News Corp and the spun off Fox Group where he will be CEO as well as keeping his 40% of class B of the common shares. Depending on how you feel about Murdoch this may be a deal breaker right there. I would much rather bet on Iger, at least until 2016. The hits just keep on coming from Disney with last weekend's smash at the box office of "Oz-The Great and Powerful."
Miss Congeniality accept your prize!
I think the two biggest risks to Disney going forward are simply that it has run so far for good reason and Iger's eventual departure. However, the many friends this most congenial company has in high (and low) places will likely stay loyal as these partnerships are mutually beneficial and no one does them better than Disney.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!