Disney: A 5-star buy in entertainment

With improving fundamentals and a proven strategy, this stock carries a top investment buy rating.

By TheStockAdvisors Feb 6, 2013 11:48AM
Arrow Up Photodisc PhotolibraryBy Tuna Amobi, S&P Capital IQ, The Outlook

Our latest Focus Stock is Walt Disney (DIS), which carries S&P Capital IQ's highest investment recommendation of 5-STARS, or "strong buy." Disney reported fiscal first-quarter results Tuesday, beating Wall Street's expectations.

We expect the company, as a cyclical bellwether, to be a major beneficiary of a global macroeconomic rebound, with improving fundamentals across virtually all of its core businesses. Disney, we believe, offers a relatively balanced asset mix that typically performs well ahead of a cyclical economic upturn, while leaving it relatively exposed to an economic downturn.

Our investment opinion reflects what we see as Disney's execution of a proven, multi-platform strategy for content exploitation that strikes a balance between organic growth and acquisitions.

Over the years, Disney has grown internally and acquired a stable of lucrative content franchises including Mickey Mouse, Disney Princess, Toy Story, Lion King, Pirates of the Caribbean, Cars, Avengers, Star Wars, and several others.

Under a management team led by Chief Executive Robert Iger, Disney has been at the forefront of embracing newer digital outlets, most recently in a film output deal with Netflix.

Also, concerted efforts are underway to expand into emerging markets such as India, Russia, Latin America, and China, which recently eased its film restrictions. Disney is planning to open its new Shanghai theme park, a joint venture with the Chinese government, in 2015.

With a recent stabilization in key operating metrics at the worldwide theme parks, we expect a substantially completed multi-year cycle of capital upgrades at the parks -- including new attractions at Disney California Adventure, Disney World and Hong Kong Disneyland, as well as two new cruise ships -- to sustain double-digit returns on invested capital.

We believe the media networks businesses will remain the primary near-term catalyst for the company's financial performance, mainly driven by relatively healthy advertising trends for ESPN and ABC networks and stations, as well as higher affiliate rates for ESPN and Disney Channels (on multi-year renewals of pay TV carriage deals).

Further margin expansion should reflect improved operating leverage from recent restructuring actions, increased exploitation of worldwide licensing opportunities, and further theme parks cost savings (including employee benefit expenses).

Results should also benefit from a ramp-up of higher-margin (and relatively nascent) revenue streams -- including digital streaming deals with subscriptions video-on-demand providers.

More from TheStockAdvisors.com
Tags: DIS
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

113
113 rated 1
268
268 rated 2
422
422 rated 3
632
632 rated 4
512
512 rated 5
518
518 rated 6
682
682 rated 7
523
523 rated 8
343
343 rated 9
124
124 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
COPCONOCOPHILLIPS9
TAT&T Inc9
DVNDEVON ENERGY CORPORATION9
EOGEOG RESOURCES Inc9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.