Disney: More Than Mickey

10/07/2005 12:00 am EST

Focus:

Vahan Janjigian

Editor, Bottom Line's Money Masters Stock Report

Quantitative analyst Vahan Janjigian maintains a list called the Forbes Growth Investor Top 50, comprised of those stocks with the strongest expectations for year-ahead performance. A new addition to the list is Disney. Here, the advisor offers his long-term outlook.

"We have added Walt Disney (DIS NYSE) to our ‘Top 50’ list of stocks. Home of Mickey Mouse, this media and entertainment giant brings in more than $30 billion a year. Disney’s media operations consist of broadcast ABC and the Disney Channel. It also owns a majority interest in the ESPN family of sports television networks, and partial interests in the History Channel, Lifetime, E! Entertainment, and other cable networks. DIS produces original TV programming for distribution to broadcasters. Popular programs include Alias, Lost, and Desperate Housewives.

"Disney’s broadcast radio business operates 51 AM and 20 FM stations reaching 124 million listeners. Radio stations offer a variety of programming including music, talk, and sports. Radio Disney is a network designed to appeal to kids. Finally, the media segment operates Disney's Internet and e-commerce sites. The consumer products division capitalizes on the ever-growing list of characters and intellectual properties and operating Disney Store operations, which consist of 107 retail stores located primarily in Europe.

"The Parks & Resorts segment owns and manages Walt Disney Resort in Florida, which includes Magic Kingdom, Epcot, Disney-MGM Studios, and Disney’s Animal Kingdom, as well as 17 accompanying hotels. It also owns the Disneyland Resort in California, which includes Disneyland, Disney’s California Adventure, and three hotels. International properties include Disneyland Resort Paris and Tokyo Disney Resort. In addition, the segment operates the Disney Cruise Line, which offers cruise vacations aboard its two 85,000-ton ships with 1,754 rooms combined.

"Finally, Parks & Resorts operates eight ESPN Zone sports-themed restaurants. Studio Entertainment produces, acquires, and distributes live-action and animated movies under the Walt Disney Pictures, Touchstone Pictures, Miramax, and Dimension banners. It also distributes new and old titles on DVD and VHS to outlets such as Best Buy and Blockbuster. Additionally, Disney publishes CDs and cassettes of soundtracks from its films; and its Buena Vista Theatrical Group develops and produces live musicals (e.g., Beauty and the Beast and Lion King).

"Revenues grew 4% in the first nine months of the current fiscal year and 3% in the fiscal third quarter. Operating income rose 13% for the first nine months and 23%. Net income for the first nine months and the third quarter improved 24% and 41%, respectively, to $2.27 billion ($1.11 per share) and $851 million (42 cents per share). A key investment concern is the uncertainty with how well new and existing TV and motion picture offerings will fare.

"A flop can kill potential product and DVD sales. Yet DIS has a strong line-up that should sustain momentum. Upcoming film releases include Flight Plan, Chicken Little, and Chronicles of Narnia. The networks should benefit from hit television shows going into their second seasons. Last but not least, the new Hong Kong Disneyland opens this month. It could prove to be a major revenue source."

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