Disney: A Great Stock for Long-Term Investors
Helen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I really like Disney (NYSE: DIS) as a company. The media giant has a great product. The company releases new titles periodically and even re-releases older movies through theatres and DVDs to increase profits with minimal expenses. As a stock, I like where the company is at. Currently, the stock is near a 52-week high in the low $40’s. The beta is 1.37, making the stock slightly more volatile than the market. Disney also offers a dividend yield to investors of 1.40% or $0.60 annually. The earnings per share of $2.65 give the stock a price to earnings ratio of 15.9, which is identical to the diversified entertainment industry. This gives the impression that the stock is neither over nor undervalued. Two of Disney’s biggest competitors come in the form of News Corp (NASDAQ: NWS), Time Warner (NYSE: TWX) and CBS (NYSE: CBS).
The stock of News Corp, the parent company of Fox news, has basically followed the market through the ups and downs over the last year. Currently, the stock has seen an increase of about 5%. One reason News Corp has not fallen behind is mainly due to airing the Super Bowl in 2011. Although ad sales fell by 2%, the company saw a 15% year-on-year increase due to the big game. In legal news for the company, the U.S. Securities and Exchange Commission has sent letters to News Corp, Disney, and DreamWorks Animation in regard to potentially inappropriate payments and how the company dealt with Chinese government officials. Although nothing has come of this yet, this could be trouble for the companies if any wrong doing is found by the SEC.
Time Warner, another company in the industry, has also followed the S&P 500 over the last year. The stock has not seen much of a gain over the last 12 months, but it is hoping to soon change that. Time Warner, along with other major Hollywood studios, has teamed up with retail giant Wal-Mart to help customers convert DVDs and Blu-ray discs into digital movies. As for the stock, analysts have recently increased their estimates for the company. The change is a move from a consensus of $1.24 per share to $1.25 in earnings per share. Analysts also see the stock reaching a mean target price of $42.52. If the stock meets the estimates analysts predict, it would equate to roughly a 12% increase.
Unlike the two previous media competitors mentioned, CBS has actually outpaced the market over the last 12 months increasing in price roughly 30%. Part of the reason CBS’ stock has soared is by surpassing earnings estimates for the fourth quarter of 2011. The company reported earnings of $0.57, compared to the estimates of $0.53. This was 23.9% higher than the $0.46 earned in the same quarter the year before. A majority of analysts consider CBS to be a buy. For the 2012 fiscal year, earnings are expected to be $2.36 per share. Although RBC Capital Markets upgraded CBS from outperform to top pick, the mean target price for the stock is only $35.88. At the current price level, that would only be about a 5% increase. Where CBS is a profitable company and a good stock to own, the favorable price to buy the stock may have already passed. While I do not think that CBS is overvalued, the stock would be more attractive at a lower price.
While Disney’s stock has not done exceptionally well over the last 12 months, I do see things improving for the company as the economy continues to improve. Disney has made a recent transaction with Providence Equity Partners over the company’s 10% stake in the website Hulu.com. The buyout will include Disney, Comcast, and News Corp, reportedly being worth $200 million. This would value the website at $2 billion. I think that this transaction will actually help all parties involved. As Hulu gains more popular, increasing utilization, more revenue from the website will follow. In addition to the growing stake in Hulu, Disney has also entered an agreement with Starbucks. The deal will bring the ultra-popular caffeinated beverage to Disney park visitors around the world. I believe that this partnership will help both companies increase revenue.
Disney’s stock is close to pushing a new 52-week high around $45 per share. TheStreet Ratings gives the stock a rating of buy. This is due to a strong record of growth in earnings per share, increases in net income and revenue, as well as an attractive valuation level. Although analysts do see the stock reaching a new 52-week high with a mean target price of $46.74, at the current level, this new price would be an increase of about 8%. Personally, I do think that Disney is a good stock to buy. The company is making smart business decisions between increasing its stake in Hulu.com and the joint venture with Starbucks. I believe the company is going to experience additional revenue growth, which is going to lead to an increase in earnings per share driving the stock price upward. In addition, I do like the company’s business model. Disney is able to market to a wide selection of audiences and is even able to profit by introducing past media from previous decades to current audiences. At the current level, I would rate Disney as buy.
QueenBC has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. If you have questions about this post or the Fool’s blog network, click here for information.