Disney investors wish upon a star

The entertainment giant is no one-trick pony, but its shares are pricey now, given their limited potential for more gains.

By Jonathan Berr Mar 11, 2013 9:06AM
Shares of Disney (DIS) have climbed about 15% this year, underperforming rivals like Viacom (VIAB) and News Corp. (NWS). Investors are worried about Disney facing rising costs for sports programming at its ESPN cable channel, one of its biggest cash cows. The company also has spent billions adding iconic entertainment properties like "Star Wars," Marvel Entertainment and the Muppets. Luckily though, Disney isn't a one-trick pony.

Disney’s Parks & Resorts business, which include Walt Disney World, Disneyland and its cruise ships, accounted for a full $3.4 billion of the company’s  $11.4 billion in revenue in the fiscal first quarter. That business generated $577 million of Disney’s $2.38 billion in operating income. 

As the economy continues to rebound, Disney’s destinations should do well. Its U.S. resorts are among the most visited by overseas tourists, so they will benefit as economies in Europe and Asia continue to improve.

However, Disney faces plenty of challenges. ESPN and its rivals are paying ever-increasing amounts for professional and college sports broadcast rights because sports is one of the few programming genres that continues to attract large audiences. This comes at a steep price, with costs for NFL rights alone topping $1 billion annually.

And Disney’s multibillion-dollar investments in entertainment companies may take years to pay off in terms of box office receipts and consumer product sales. The company has bet $225 million on "Oz The Great and Powerful," its much-hyped prequel to "The Wizard of Oz." Though it grossed $80.3 million during its opening weekend, the best performance this year of any film, scathing reviews from major film critics may hamper its long-term profitability.

Disney’s stock is expensive and, for now, probably not worth considering. The company trades at a price-to-earnings ratio of 18.22, a five-year-high. Analysts have an average 52-week price target of $60.79 on the stock, about 5% higher than where it currently trades. Investors should wish upon a star for the stock to pull back before adding it to their portfolios.
 
10Comments
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Disney is sitting on a gold mine with it's amusement parks, cruise lines, Star Wars, and movie investments.  "Oz the Great and Powerful"   is an outstanding family film. It teaches so many values such as tolerance, hope, self-esteem, confidence, and goodness!  It delivers these messages in an engaging, awesome, and touching manner, through incredible cinematic techniques. We bought our son some Disney stock when he graduated from college, and it was a wise decision. Everyone has a special spot in their heart for Disney productions, and thank goodness we will cherish Walt's vision for many more years!
Mar 13, 2013 1:45PM
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Yet another NBC money writer not understanding the meaning of life.  Suppose thats why they are spitting out web articles and not working in industry.  In case no one noticed, over the last four years investors have been stashing cash on the sidelines because of the economic uncertainties of the current administration.  I believe there is around 8 or 9 trillion sitting on the sidelines right now that have been taken out of growth and re-investment.  So, the market ticks up, companies like Disney buy out other companies and build nice portfolios of underproducing yet long term assets.  And the market goes up as people are willing to invest in a chunk of those assets knowing that 1 banana tomorrow may be just as valuable as 20 bananas today.  Its all kind of simple really.  But now, with the tax hike to the middle class finally coming through, companies can now plan and put a few dollars into upgrades to their existing operations and pass the expense onto the consumer.  So, the economy will trug up a bit now for a while, but consumer goods... still down.  Do the opposite of what NBC writers pump out to you, and you will be ok with the smart people who are laughing at them. 
Mar 14, 2013 8:20AM
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not the same as its founder had or wanted getting liberal progressive wrong or moral changes we dont go any more we did go almost every vacation for last 20yrs but rate better than whats out there just now expensive for our kids
Mar 14, 2013 3:58PM
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Disney is not now using the magic, they're using the Force !!!.
Mar 13, 2013 2:09PM
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They kill Clone Wars and make John Carter, idiots!
Mar 11, 2013 6:00PM
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Hello Disney* My "Star is for Sale" My<>Rock$<>My Mineral$<>My $tone$<>My Right$
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