Disney: "Long-Term Magic"

10/07/2016 7:00 am EST

Focus: STOCKS

Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

This media and entertainment giant includes crown jewels such as ESPN and ABC; movie franchises such as Frozen, Star Wars and X- Men; and its theme parks in the US, France, Japan, China, notes Ingrid Hendershot, blue chip money manager and editor Hendershot Investments.

During the past five fiscal years, Disney (DIS) has generated more than $27 billion in free cash flow and returned $32 billion to shareholders through dividends and share repurchases.

Despite ramped-up capital spending prior to the opening of Shanghai Disneyland in June, year-to-date free cash flow increased 26% to $5.7 billion, boosted by efficient working capital management.

With year-to-date share repurchases of $6.6 billion at an average cost of $101.54 per share, Disney is well on track to buy back up to $8 billion of its shares this year.

In June, Disney announced a 7.6% increase in the semi-annual dividend to $0.71 per share. Disney has paid dividends for 61 consecutive years.

Disney recently announced the $1 billion purchase of a 33% stake in BAMTech, the industry leader in video streaming -- a service built by Major League Baseball. Disney has the option for future majority ownership.

This significant technology infrastructure investment is in response to threats to Disney’s lucrative ESPN franchise from cord cutters, over-the-top TV and “skinny” bundles.

AMTech will become a key partner in delivering streaming video and other digital products from ESPN, ABC and Disney.

During the past five fiscal years, Disney has produced strong growth. Revenues have compounded at a 6% annual rate with net income up 15% annually and EPS growing at an 18% annual clip.

Disney reported solid third fiscal quarter results with revenues increasing 9% to $14.3 billion, net earnings up 5% to $2.6 billion and EPS up 10% to $1.59.

These strong results resulted from stellar Studio Entertainment performance led by Captain America, Finding Dory, Jungle Book, Zootopia and Star Wars plus improvement in US Parks & Resorts operations.

Investors seeking to build magical long-term results should consider The Walt Disney Company, a high quality company with iconic brands, strong cash flow and profitable growth.

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By Ingrid Hendershot, Editor Hendershot Investments

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