Stock of the day 03/08/2015 – The Walt Disney Co

Its biggest release might still be 5 months away, but this hasn’t stopped Walt Disney consistently hitting new highs; the multimedia company announces its third quarter results on Tuesday.

2015 has been a year of near uninterrupted gains for Disney, an impressive feat for a company as old, and as pricey, as the House of Mouse. A low of $90.84 at the end of January was swiftly forgotten with some stellar first quarter figures at the start of February. That quarter, boosted by 2014’s perpetual money making machine ‘Frozen’, saw a 9% jump in revenue to $13.391 billion alongside a 19% increase in net income to $2.182 billion.

These figures helped Disney cross $100 for the first time ever, and since then the stock hasn’t looked back. By the time of its second quarter earnings release at the start of May the stock had climbed to $110; in fact, at one point Disney had added $2 billion to its valuation just by releasing a new ‘Star Wars’ trailer.


(Source: IT-Finance.com 03/08/2015)

The period that this Q2 release covered lacked a mega-blockbuster of the kind Disney has become accustomed to. However, ‘Cinderella’ still made $539.6 million off of a $95 million budget (excluding marketing) and, combined with the continued bump from ‘Frozen’ merchandise and impressive theme park growth, Disney posted earnings per share of $1.23 against the $1.10 forecast, alongside a 7% jump in sales to $12.5 billion. This saw the company spike to a then-high of $113 before it spent the majority of May not straying too far away from its $110 benchmark.

Since then the stock has only been in ascendance, and at the end of July crossed $120 for the first time in its history; it has a current trading price of $120.03 (IT-Finance.com, 03/08/2015). All you have to do is look at the films Disney has released since its second quarter, and it is understandable why the company has proved to be an enduring favourite for the past few months (and indeed years). ‘Avengers: Age of Ultron’ went on to earn $1.3985 billion off of a $279.9 million budget (excluding marketing), whilst ‘Ant Man’, whilst seeing the lowest opening for a Marvel Cinematic Universe film since ‘The Incredible Hulk’ back in 2008, is still at $291.6 million and counting.

And that is just Disney’s Marvel films. ‘Inside Out’, the latest offering from Pixar, not only got some of the animation studio’s best ever reviews, but set a new record for the highest opening for an original title, beating all-time highest grossing film ‘Avatar’. It currently sits at $602.3 million from a $175 million budget. Of course, not all of Disney’s films have been a run-away success; in a result reminiscent of ‘John Carter’ from a few years ago, ‘Tomorrowland’ (based on one of the company’s theme park rides) only made $190 million from a $204.4 million budget. And whilst that might only seem like a $10 million loss, when marketing is factored in that number grows by quite a bit; in fact, estimates put the film’s losses at around $140 million.

However, combine Disney’s film revenue with its theme parks, television and, of course, its extensive (and lucrative) merchandising lines (including the Disney Infinity video game, i.e. a fresh license to print money) and the company can more than swallow that loss. In terms of the third quarter figures, analysts are expecting a 6% increase in revenue to $13.2 billion alongside a near 11% jump in earnings per share to $1.42.

And whilst these figures may be impressive but not that impressive compared to stocks like Google, Amazon or Netflix, it is important to remember a few things. Disney still has a lot of revenue in the pipeline when its current wave of mega-popular films comes out on DVD and Blu-ray sales. It is also hard to see the films Disney has got left in 2015, let alone the next few years, being flops. First is ‘The Good Dinosaur’ in November, the next Pixar film and hot on the heels of the success of ‘Inside Out’. December then sees the film likely to be the shiniest jewel in a Disney crown already full of gems. That film, of course, is ‘Star Wars VII: The Force Awakens’; in the world of billion dollar movies its harder to find bigger guarantee than a story taking place a long time ago, in a galaxy far, far away.

The Walt Disney Co has a consensus rating of ‘buy’ with an average target price of $120.