Walt Disney Company (DIS) turns 100 this year and will make more money than ever before, potentially posting a third consecutive year of double-digit growth, notes Adam Johnson, growth stock expert and editor of Bullseye Brief.
The company is the world’s second largest tourist attraction operator behind the National Parks Service, and the country’s second largest media content and distribution platform behind Comcast/NBC Universal.
It’s also a company whose stock has lost half its value, following 18 tumultuous months under a CEO who put politics over profits, setting arbitrary ESG goals and stripping content creators of P&L accountability. But that was last year. Legendary CEO Bob Iger has returned to the C-suite and promises to set the ship on a new course.
Five of the top 10 shareholders have added to positions, as have insiders. Every time DIS stock descends below $100, buyers emerge. This is a a top-franchise across multiple businesses, repositioning for growth under a proven leader, and the stock is cheap.
Analysts estimate topline revenue will rise to a new high this year of $91 billion, an increase of 8% YoY. Curiously, this is down from nearly 20% each of the past two years, which speaks to the bearishness of Wall Street at the moment. So I think we could actually see an upside surprise.
The Parks division has been seeing record attendance, and prices are rising on Disney cruise ships as well. Similarly, ad rates and ad volumes are up at ESPN, which is the jewel in the crown given its dominance of live sports. Additional growth will come this year from new movie releases Guardians of the Galaxy, The Little Mermaid and Indian Jones.
Disney has traditionally reported results across four primary operating segments: Networks (ABC, ESPN, FX, History Channel, National Geographic); Streaming and Studio (Disney Studios, LucasFilm, Marvel Studios, Pixar, 20th Century FOX); Parks and Cruises (12 theme parks across the US, China, France and Japan plus 5 cruise ships) Consumer Merchandise (costumes, toys, memorabilia).
Over the next year, returning CEO Bob Iger will simplify this structure to ESPN, Parks/Cruises, and all other content. By breaking out ESPN, he aims to showcase its importance, while combining all other content under one simplified reporting structure meant to encourage synergy.
Mr. Iger targets $5.2 billion in cost savings over the next 18 months — a high bar given annual revenue of $90 billion. Half the cuts will come from layoffs across all segments of the company, with another $1 billion coming from tighter expense controls. The remaining $1.5 billion in savings will presumably come from greater efficiencies in running all creative content generation under one roof.
My $160 target price reflects an average of three separate prices calculated using three different methodologies — a sum of the parts, a reversion to the mean, and a discounted cash flow analysis. The average of these three results is $160. From my point of view, Disney is a "buy".