First Cut Stock Study Report

Transcription

1 First Cut Stock Study Report Company Name: Walt Disney Co. Ticker: DIS Date of Study: 12/15/2016 Price: $ Your Name: address: Stock-ing Stuffers: Marsha, Ann, Sean, John, Jack, Ken kenz@betterinvesting.org City: Madison Heights State: mi Chapter Name (if applicable): BetterInvesting and ICLUBcentral staff Discuss why you consider this to be a high quality, growth company that should be investigated further. Please include comments on historical sales and EPS growth, pre-tax profit margin, return on equity, and debt. The Walt Disney Co. is an international entertainment and media enterprise. Disney is a large company with Fiscal 2016 Sales of $55.6 billion and increase of over 6% from Fiscal Sales have grown over 6% on average over the past 5 years. Earnings have grown steadily over that past 5 years and were up over 16% in Fiscal 2016 over Fiscal Pre-tax profit has increased over 13% on average over the past 5 years. Return on equity has steadily increased over the past 5 years and averages over 16%. Debt to capital has averaged approximately 27% over the past 5 years. Interest coverage is excellent at 43X. Briefly describe how the company makes money: The Walt Disney Company is a leading media conglomerate with key operations in theme parks, television, filmed entertainment and merchandise licensing. Theme Parks and Resorts (30% of Fiscal 2016 revenues includes the Company s best known assets: Disney World and Disneyland parks in Orlando, FL and Anaheim, CA respectively; the Disney Cruise Line; Euro Disney, Paris; and Hong Kong Disneyland, in June 2016 the company opened another park in Shanghai, China.Media Networks (43% of revenues) includes the ABC broadcast network;10 TV Stations; and cable networks ESPN, The Disney Channel and ABC Family. Studio entertainment (17% of revenues) includes the film, television and home video businesses under the Walt Disney, Touchstone and Miramax brands. Consumer products (10% of revenues) include merchandise licensing, children s book publishing, video game development, as well as more than 200 retail stores in North America, over 100 in Europe, and over 50 in Japan. When you buy Disney stock, you are buying an extremely diversified company that not only operates in a number of different areas, but realizes incredible synergies in those areas.

2 These synergies essentially all begin with the Studio Entertainment division. Disney produces a new film, which (depending on its success) can then leverage the success of a franchise of characters to the other divisions of the company through merchandise in its Consumer Products division, new attractions and rides with its Parks and Resorts division, and even new TV shows within its Media Networks division. But the power of Disney s diversification doesn t stop with its synergies. The company has amazing brands which throw out a lot of cash. For instance, the ESPN franchise is the clear leader in sports reporting and entertainment, while other networks like ABC and The Disney Channel are huge, successful players in television. The Media segment, which the aforementioned units all fall under, accounted for 42% of the company s $56 billion in revenue last year. Meanwhile, Disney Parks and Resorts, which accounted for 31% of revenues, has its footprints all over the world and is a leader in the theme park industry. While Disney s strong brands are a great argument for growth, the company does put a little bit of cash back into shareholders hands via dividends. DIS annual dividend for 2016 was $1.42. While that translates into just a 1.4% yield currently, Disney s dividend has improved 136.7% in just the past five years. We anticipate the current yield will continue. In 2016, DIS delivered the highest revenue, net income and earnings per share in the Company s history. This was their sixth consecutive year of record results, highlighted by the opening of Shanghai Disney Resort, and the successful return of Star Wars. All of Disney s major divisions will likely keep on pumping out cash and growing at a healthy rate, but the studio division has the potential to post staggering numbers in the coming years. In 2016, Disney s Studio Entertainment division accounted for 17% of the company s revenue (28% higher than the year before) and 17% of operating income (37% higher than the previous year). The revenues strictly from these new films will help boost Disney stock in the coming year, not to mention how DIS should be able to leverage their success in 2017 and beyond. Projected growth rate for sales: 5.5% Why did you select this rate? Discuss from where future growth will come. Supported by historical growth and analyst estimates. This is an acceptable growth rate for a large company.

3 Projected growth rate for earnings per share: 7.0% Why did you select this rate? Our estimate is below the long term analyst estimates (Zacks, Morningstar, Yahoo and Value Line). This value was supported by the preferred method. Projected High P/E: 19.5 We removed the high in Took an average of the remaining 4 years and bumped a little lower to make a conservative estimate. Projected Low P/E: 13.7 We took the most recent 5-year average for low P/E Projected Low Price: $78.50 We used 4B(a) on the Stock Selection Guide (Low P/E x the Low EPS). It is reasonable due to it is below 25% of the current price. At the current price, the stock is a (check one): Buy or Hold or Sell At the current price, the upside-downside ratio is: 2.1 to 1 Compound Annual Return Using Forecast High P/E: 9.8% Your final recommendation (check one): Explain: Buy or Hold or Sell This is an attractive company. If you are looking for a large company to anchor your portfolio you may consider DIS at the current price.

4 Stock Selection Guide Company Walt Disney Date 12/14/16 Prepared by PULRANG Data taken from BI Stock Data Where traded NYS Industry Media - Diversified Capitalization --- Outstanding Amounts Reference Preferred ($M) 0.0 % Insiders % Institution Common (M Shares) 1, Debt ($M) 20,170.0 % to Tot Cap 31.8 % Pot Dil VISUAL ANALYSIS of Sales, Earnings, and Price Symbol: DIS FY 2016 Q4 Latest Quarter Year Ago Quarter Percentage Change Sales ($M) 13,142 13, % Earnings Per Share % (1) Historical Sales Growth 5.2% (3) Historical Earnings Per Share Growth 12.9% (2) Estimated Future Sales Growth 5.5% (4) Estimated Future Earnings Per Share Growth 7.0%

5 2 EVALUATING Management 5 5-YEAR POTENTIAL This combines price appreciation with dividend yield to get an estimate of total return. It provides a standard for comparing income and growth stocks. A Indicated Annual Dividend Closing Price B AVERAGE YIELD - USING FORECAST HIGH P/E Avg. % Payout 25.0 % 1.3 % Forecast High PE C COMPOUND ANNUAL RETURN - USING FORECAST HIGH P/E Annualized Appreciation Average Yield Annualized Rate of Return 8.5 % 1.3 % 9.8 % % Current Yield AVERAGE YIELD - USING FORECAST AVERAGE P/E Avg. % Payout 25.0 % 1.5 % Forecast Average PE COMPOUND ANNUAL RETURN - USING FORECAST AVG P/E Annualized Appreciation Average Yield Annualized Rate of Return 5.1 % 1.5 % 6.6 % Walt Disney Last 5 Year Avg. Pre-tax Profit on Sales 21.8% 19.6% 15.7% 17.4% 19.7% 21.9% 21.4% 25.1% 26.4% 26.7% 24.3% % Earned on Equity 13.9% 12.9% 9.7% 10.4% 12.5% 14.1% 14.0% 15.9% 17.8% 20.8% 16.5% % Debt To Capital 33.4% 31.2% 27.7% 25.3% 27.6% 26.9% 24.3% 24.8% 28.0% 31.8% 27.2% 3 PRICE-EARNINGS HISTORY as an indicator of the future This shows how stock prices have fluctuated with earnings and dividends. It is building block for translating earnings into future stock prices. CLOSING PRICE (12/14/16) HIGH THIS YEAR LOW THIS YEAR A B C D E F G H Year Price Earnings Price Earnings Ratio Dividend % Payout % High Yield High Low Per Share High A / C Low B / C Per Share F / C * 100 F / B * AVERAGE CURRENT/TTM AVERAGE PRICE EARNINGS RATIO: 16.8 CURRENT PRICE EARNINGS RATIO: EVALUATING RISK and REWARD over the next 5 years Assuming one recession and one business boom every 5 years, calculations are made of how high and how low the stock might sell. The upside-downside ratio is the key to evaluating risk and reward. A HIGH PRICE - NEXT 5 YEARS Avg. High P/E 19.5 X Estimate High Earnings/Share 8.04 Forecasted High Price $ B LOW PRICE - NEXT 5 YEARS (a) Avg. Low P/E (b) Avg. Low Price of Last 5 Years (c) Recent Market Low Price (d) Price Dividend Will Support 13.7 X Estimate Low Earnings/Share 5.73 Forecasted Low Price $ Indicated Dividend High Yield Selected Forecasted Low Price $ 78.5 C ZONING using 25%-50%-25% Forecasted High Price Minus Forecasted Low Price Range. 25% of Range 19.6 Buy Zone Hold Zone Sell Zone % 78.5 to to to Present Market Price of is in the HOLD Zone D UPSIDE DOWNSIDE RATIO (POTENTIAL GAIN VS. RISK OR LOSS) High Price Minus Present Price Present Price Minus Low Price To 1 E PRICE TARGET (Note: This shows the potential market price appreciation over the next five years in simple interest terms.) High Price Closing Price X % Appreciation 61.6