Disney: Entertainment Ecosystem

07/28/2015 7:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Our latest spotlight recommendation has added to its cast of bankable characters that includes Mickey Mouse, Buzz Lightyear, Spider-Man, and Chewbacca, says Richard Moroney, editor of Dow Theory Forecasts.

In the past decade, Disney (DIS) has bought Pixar ($7.4 billion), Marvel ($4 billion), and Lucasfilm ($4 billion). For investors, the result is a remarkably steady track record.

  • Per-share profits have risen by double-digits in 15 of the past 16 quarters.
  • Sales have grown in 18 straight quarters.
  • Operating cash flow has advanced in eight of the last nine quarters.
  • Returns on assets, equity, and investment have marched higher.

For the 12 months ended March, Disney grew earnings per share 18%, sales 8%, and cash from operations 9%.

An entertainment ecosystem of retail shops, merchandising partnerships, and theme parks lets Disney squeeze more out of popular franchises than rivals might.

Its media networks (45% of revenue and 51% of operating income) operates broadcast and cable networks such as ABC, ESPN, Disney, and A&E.

Disney also owns a 33% stake in Hulu, which streams TV shows online to about 9 million paid subscribers. The media unit’s sales grew 12% in the first half of fiscal 2015.

In addition to it iconic theme parks in Florida, California, and Hawaii, the company owns stakes in Disney-themed resorts in Paris, Hong Kong, and Shanghai, while licensing a resort in Japan.

For the current calendar year, Disney’s US box-office sales surpassed $1 billion at its fastest pace ever.

Disney has generated $19.78 billion in free cash flow over the past five years. In that time. the company grew its dividend at least 14% a year and lowered its share count 13%.

Disney shares trade at 25 times trailing earnings. While far from cheap, the P/E premium makes sense for an industry leader tapping into numerous attractive growth markets.

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