A Great Upcoming Year Despite This Quarter's Results

Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If you are a long-term investor, sometimes it pays to ignore a quarterly earnings report and look at the bigger picture. Such was the case with Walt Disney's (NYSE: DIS) recent earnings. With revenue up just 5% and EPS actually down 1.25%, short-term investors might have thought the company was in trouble. However, if you take a longer viewpoint, 2013 should be a very good year for the House of the Mouse.

The Shifting Landscape
The only certainty in the entertainment industry is everything changes. With the recent announcement by Comcast (NASDAQ: CMCSA) that they were buying the rest of NBCUniversal from General Electric, Comcast just put the industry on notice. Prior to this acquisition, Disney was the only company that could claim ownership of a major channel on television, a movie studio, and a well known theme park. Now that Comcast will own 100% of NBCUniversal, they not only own all of the above, but also the cable “pipes” as well. With NBC posting revenue up 7.9%, this should be a growth driver for Comcast going forward.

Time Warner (NYSE: TWX) is a strong competitor in the entertainment field with channels like TNT, TBS, and the pay channel king HBO. The combination of these channels reported revenue up 5% in the company's recent quarter. However, the company's lack of a main channel like an ABC, NBC, or CBS (NYSE: CBS), puts Time Warner at a bit of a disadvantage.

On the opposite side of the coin, CBS has one of the most watched television channels, but revenue for CBS was basically flat in the last three months. The company's Showtime and CBS Sports networks did much better with revenue up 11%.

Disney turned in very respectable results with television revenues up 7% despite rate increases from the NFL, NCAA, and more NBA games this year compared to last year.

Holy Movies Batman!
While television is a constant battle between these companies, where there is a real separation is their respective movie studios. CBS is at a distinct disadvantage because they can't lay claim to anything in this field. Looking at Time Warner's Warner Bros., Comcast's Universal Studios, and Disney's studio operations shows a two-person race.

Last year, Universal Studios had two huge hits with Les Miserables and Pitch Perfect. Unfortunately, 2013 holds three potential hits in Fast and Furious 6, Despicable Me 2, and Kick-Ass 2. No disrespect to these franchises, but none of these is at the level of Les Miserables.

The two real competitors in the movie industry in 2013 will be Time Warner and Disney. Time Warner might win this battle because of the sheer number of potential hits on the way. The company's Warner Bros. studio has lined up films like Man of Steel, 300: Rise of an Empire, The Hobbit: The Desolation of Smaug, The Great Gatsby and more.

However, Disney has some serious hits of its own, with follow-up films like Monsters University, Iron Man 3, Thor: The Dark World, The Lone Ranger, and a spin-off of the hugely popular Cars franchise called Planes. The sheer size of these movies' impact on the bottom line means both companies will likely live and die by their numbers at the box office.

The Tale of the Tape
On the surface, Disney's stock doesn't look as attractive as their peers. Analysts are calling for the company to grow earnings by 11.26%, which is the lowest growth rate of the group. In addition, Disney's yield of 1.4% is the second lowest. Given these numbers, what other options exist?

Investors could certainly favor Comcast at current prices. The company's yield is second best of their peers, and they are expected to have the highest growth rate of the group. In addition, the company's low 28.1% free cash flow payout ratio suggests even better dividends are coming. An equally attractive play on the entertainment industry would be Time Warner, and their class leading 2.2% yield and second best 12.19% expected EPS growth rate. With a huge movie lineup in 2013, and significant share repurchases in 2012, investors should expect good things in 2013.

The toughest comparison to Disney is CBS, which has a lower yield, about the same expected earnings growth, and no movie studio to drive growth. The company's payout ratio is low, and management is repurchasing shares, but CBS seems like the fourth best company in this race.

While Disney may not look as attractive as some of their peers at first, I think analysts are being too conservative. The company won't have to spend as much to promote movies like Monster University, Iron Man 3, and the Thor sequel, because they are established franchises. The upcoming Planes movie should resonate with young and old audiences alike because of the expected similarity to Cars. These highly anticipated sequels should generate significant ticket sales with less promotional expenses, which could result in surprisingly good earnings growth. Investors hoping to benefit from this surge in profits should stop mousing around and add DIS to their Watchlist today.

Michael Henage 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!

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