BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUY BUY RATING SINCE 12/14/2010 TARGET PRICE $127.71 BUSINESS DESCRIPTION The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change 12.94 6.26 6.52 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues -2.77-0.89 4.14 Net Income -1.36-4.38 6.18 EPS 2.72-0.53 10.21 RETURN ON EQUITY (%) Ind Avg S&P 500 Q4 2017 21.73 13.53 13.41 Q4 2016 21.70 14.77 11.79 Q4 2015 18.82-63.72 12.91 P/E COMPARISON Sector: Consumer Goods & Svcs Sub-Industry: Movies & Entertainment Source: S&P Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years Rating History BUY Volume in Millions 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History TARGET PRICE $127.71 130 125 120 115 110 105 100 95 90 100 50 0 19.43 EPS ANALYSIS¹ ($) 72.11 Ind Avg 25.50 S&P 500 RECOMMENDATION We rate () a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any nesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity, increase in stock price during the past year, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and growth in earnings per share. We feel its strengths outweigh the fact that the company shows operating cash flow. HIGHLIGHTS The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Media industry and the overall market, 's return on equity exceeds that of both the industry average and the S&P 500. Q1 1.27 Q2 1.23 Q3 1.45 2015 Q4 0.95 Q1 1.73 Q2 1.30 Q3 1.59 2016 NA = not available NM = not meaningful Q4 1.10 Q1 1.55 Q2 1.50 Q3 1.51 2017 1 Compustat fiscal year convention is used for all fundamental data items. Q4 1.13 The stock price has risen over the past year, but, despite its earnings growth and some other positive factors, it has underperformed the S&P 500 so far. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year. The debt-to-equity ratio is somewhat low, currently at 0.62, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that 's debt-to-equity ratio is low, the quick ratio, which is currently 0.65, displays a potential problem in covering short-term cash needs. 43.55% is the gross profit margin for which we consider to be. Regardless of 's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, 's net profit margin of 13.67% compares favorably to the industry average. 's earnings per share improvement from the most recent quarter was slightly positive. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, reported lower earnings of $5.69 versus $5.72 in the prior year. This year, the market expects an improvement in earnings ($6.24 versus $5.69). PAGE 1
PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) LGF.A -10% 50% UNFAVORABLE 5% LYV EBITDA Margin (TTM) VIAB FOXA VIA CNK FAVORABLE TWX FOX 35% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $4.2 Billion and $167 Billion. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -10% 50% UNFAVORABLE -2% LYV LGF.A Earnings Yield (TTM) TWX FOX FOXA CNK FAVORABLE VIA VIAB 16% Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -0.9% and 49%. Companies with NA or NM values do not appear. INDUSTRY ANALYSIS The $1 trillion global Media industry includes advertising, cable, film, newspapers, radio, and television. The Media business is dominated by household-name corporations such as Walt Disney (), New York Times (NYT), and Time-Warner (TWX). However, several smaller, but rapidly growing players include Comcast (CMCSA) and H Network (H). The industry is reliant on the economy and is one of the first sectors to thrive in a recovery and decline during a recession. Media companies naturally prosper during election years, thanks to substantial increases in advertising revenues -- the key metric of growth. This positive cyclical factor -- which is highlighted by an estimated $2 billion increase in both political and Olympic-related advertising -- is why overall growth forecasts for advertising continue to be positive. Those threats include potential legislation and court rulings on media merger concentrations within geographical regions, splitting up the royalty pie of movie distribution fees with screenwriters, competing with cheaper cable advertising rates, and the rising popularity of fast-forwarding through commercials by Digital Video Recorder (DVR) owners. Court fights and potential net neutrality legislation may pick winners and losers. Federal court rulings against the Federal Communications Commission (FCC) risk allowing broadband internet providers like Comcast charging higher prices to content providers and other websites to remain being received at top speed stifling new small business growth. Newspaper companies are desperate to see a rebound in corporate and classified advertising. However, the revenue streams from classified ads are being supplanted by internet ads and newspapers are attempting to sell online subscriptions to bolster declining print circulations. As for the film business, Hollywood continues to live or die based on the latest blockbuster releases and a reliance on sequels. In a bullish trend, products, such as new phones, almost as large an Apple ipad, are giving consumers more ways to consume media while staying mobile. PEER GROUP: Media Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 110.57 166,995 19.43 55,137.00 8,980.00 LYV LIVE NATION ENTERTAINMENT 42.81 8,853 2,140.50 9,588.84 13.96 FWONA LIBERTY MEDIA CP MEDIA GROUP 33.46 8,006 NM 1,213.00-120.00 FWONK LIBERTY MEDIA CP MEDIA GROUP 35.06 8,006 NM 1,213.00-120.00 TWX TIME WARNER INC 89.65 69,801 17.01 30,551.00 4,151.00 LGF.A LIONS GATE ENTERTAINMENT CP 32.50 6,554 33.85 3,954.49 220.30 FOX TWENTY-FIRST CENTURY FOX INC 34.22 64,089 21.25 28,996.00 2,986.00 FOXA TWENTY-FIRST CENTURY FOX INC 34.88 64,089 21.66 28,996.00 2,986.00 CNK CINEMARK HOLDINGS INC 36.12 4,207 17.12 2,942.47 246.11 VIAB VIACOM INC 29.71 12,171 6.38 13,263.00 1,874.00 VIA VIACOM INC 34.15 12,171 7.33 13,263.00 1,874.00 The peer group comparison is based on Major Movies & Entertainment companies of comparable size. PAGE 2
Annual Dividend Rate COMPANY DESCRIPTION The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. The company's Media Networks segment operates cable programming services under the brand ESPN, Disney, and Freeform; broadcast businesses, which include the ABC TV Network and eight owned television stations; radio businesses consisting of the ESPN Radio network; and the Radio Disney network. It also produces and sells original live-action and animated television programming to first-run syndication and other television markets, as well as subscription video on demand services and in home entertainment formats, such as DVD, Blu-Ray, and electric home video license. Its Parks and Resorts segment owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort in California. This segment also operates Disney Resort & Spa in Hawaii, Disney Vacation Club, Disney Cruise Line, and Adventures by Disney; and manages Disneyland Paris, Hong Kong Disneyland Resort, and Shanghai Disney Resort, as well as licenses its intellectual property to a third party for the operations of the Tokyo Disney Resort in Japan. The company's Studio Entertainment segment produces and acquires live-action and animated motion pictures for distribution in the theatrical, home entertainment, and television markets primarily under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm, and Touchstone banners. This segment also produces stage plays and musical recordings; licenses and produces live entertainment events; and provides visual and audio effects, and other post-production services. Its Consumer Products & Interactive Media segment licenses its trade names, characters, and visual and literary properties; develops and publishes mobile games; and sells its products through The Disney Store, shopdisney.com, and shop.marvel.com, as well as directly to retailers. The company was founded in 1923 and is based in Burbank, California. 500 South Buena Vista Street Burbank, CA 91521 USA Phone: 818-560-1000 http://www.thewaltdisneycompany.com STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 3.5 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 60% of the stocks we rate. Total Return 2.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 40% of the companies we cover. Efficiency 5.0 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review. Price volatility 3.5 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 60% of the stocks we monitor. Solvency 5.0 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 90% of the companies we analyze. Income 3.5 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 60% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial FINANCIAL ANALYSIS 's gross profit margin for the fourth quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. Sales and net income have dropped, although the growth in revenues underperformed the average competitor within the industry, the net income growth did not. NEY (WALT) CO has liquidity. Currently, the Quick Ratio is 0.65 which shows a lack of ability to cover short-term cash needs. The liquidity decreased from the same period a year ago, despite already having liquidity to begin with. This would indicate deteriorating cash flow. 1.61 Q1 FY17 6.24 E 2018(E) 6.56 E 2019(E) During the same period, stockholders' equity ("net worth") has remained virtually unchanged only decreasing by 4.50% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future. INCOME STATEMENT Net Sales ($mil) 12,779.00 13,142.00 EBITDA ($mil) 3,337.00 3,532.00 EBIT ($mil) 2,629.00 2,843.00 Net Income ($mil) 1,747.00 1,771.00 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 4,017.00 4,610.00 Total Assets ($mil) 95,789.00 92,033.00 Total Debt ($mil) 25,432.00 20,364.00 Equity ($mil) 41,315.00 43,265.00 PROFITABILITY Gross Profit Margin 43.55% 44.28% EBITDA Margin 26.11% 26.87% Operating Margin 20.57% 21.63% Sales Turnover 0.58 0.60 Return on Assets 9.37% 10.20% Return on Equity 21.73% 21.70% DEBT Current Ratio 0.81 1.01 Debt/Capital 0.38 0.32 Interest Expense 137.00 119.00 Interest Coverage 19.19 23.89 SHARE DATA Shares outstanding (mil) 1,500 1,600 Div / share 0.78 0.71 EPS 1.13 1.10 Book value / share 27.54 27.04 Institutional Own % NA NA Avg Daily Volume 8,093,521 8,117,816 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RATINGS HISTORY Our rating for has not changed since 5/4/2010. As of 12/14/2017, the stock was trading at a price of which is 4.8% below its 52-week high of $116.10 and 14.9% above its 52-week low of $96.20. 2 Year Chart BUY: $109.35 2016 $120 $110 $100 MOST RECENT RATINGS CHANGES Date Price Action From To 12/14/15 $109.35 No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & TRIBUTION OF THESTREET RATINGS (as of 12/14/2017) 44.62% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.32% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 25.06% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION BUY. The current P/E ratio indicates a significant discount compared to an average of 72.11 for the Media industry and a discount compared to the S&P 500 average of 25.50. For additional comparison, its price-to-book ratio of 4.01 indicates a premium versus the S&P 500 average of 3.24 and a premium versus the industry average of 3.50. The price-to-sales ratio is well above the S&P 500 average, but well below the industry average. The valuation analysis reveals that, seems to be trading at a discount to investment alternatives within the industry. Price/Earnings 19.43 Peers 72.11 Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. is trading at a significant discount to its peers. Price/Projected Earnings 16.85 Peers 41.37 Discount. A lower price-to-projected earnings ratio than its peers can signify a less expensive stock or lower future growth expectations. is trading at a significant discount to its peers. Price/Book 4.01 Peers 3.50 Premium. A higher price-to-book ratio makes a stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a premium to its peers. Price/Sales 3.01 Peers 35.51 Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant discount to its industry on this measurement. CLAIMER: Price/CashFlow 13.44 Peers 11.35 Premium. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a premium to its peers. Price to Earnings/Growth 2.01 Peers 0.96 Premium. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant premium to its peers. Earnings Growth lower higher -0.53 Peers -76.30 Higher. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. is expected to have an earnings growth rate that significantly exceeds its peers. Sales Growth lower higher -0.89 Peers 8.77 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5