Why This Is Still My Favorite Entertainment Stock
Mitchell Clark | Aug 19, 2014 04:52AM ET
A top stock for investors and a strong equity market leader has been, and continues to be, The Walt Disney Company (NYSE:DIS)). It’s a Dow Jones component, a solid dividend payer and, similar to other dividend-paying blue chips, it’s offered earnings (growth) safety to date. Institutional investors have bid this business tremendously.
The company ’s latest quarter, its third fiscal quarter of 2014 ended June 30, 2014, produced a very good increase in sales, from $11.58 billion in the same quarter of 2013 to $12.47 billion.
Earnings grew impressively as well, coming in at $2.25 billion, or $1.28 per diluted share, compared to $1.85 billion, or $1.01 per diluted share, the year earlier.
These are impressive gains for such a mature business, and they support the company’s strong capital gains on the stock market.
Disney’s two-year stock chart is featured below:
Within the numbers, there’s an excellent snapshot of what’s happening in the entertainment industry. Business conditions are really good.
The company’s largest operations are its media networks division, which includes cable networks and broadcasting. This division continues to grow and remains highly profitable.
Also growing is Disney’s theme park business, with fiscal third-quarter revenues coming in at $3.98 billion, compared to $3.68 billion last year.
Along with Shanghai Shendi (Group) Co., Ltd., Disney is building the Shanghai Disney Resort theme park for approximately $5.5 billion. Completion is expected to be early next year. Shanghai Shendi owns 57% of the park, while Disney has majority ownership in its management.
The company noted that it is seeing higher attendance and higher average guest spending at its domestic parks and resort. This is a trend that’s been ongoing for several quarters now.
On the downside, Disney booked a $143-million foreign currency loss due to the devaluation in Venezuela (offset by a gain on property of $77.0 million). And restructuring charges (another way of saying the elimination of employees) cost $67.0 million over the last nine months.
Like so many other blue chips, Disney is buying back its own shares with fervor. In the nine months ended June 30, 2014, the company bought back 68 million shares of its stock, spending a whopping $5.1 billion. However, this helped diluted earnings per share significantly. Management is still authorized to repurchase another 93 million common shares without expiration.
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From the investor’s perspective, there’s no reason to expect Disney’s price momentum on the stock market to stop. The company’s balance sheet is solid, there’s lots of cash in the bank for share repurchases and higher dividends, and business conditions at all of the company’s divisions are growing.
I give Disney high marks for its detailed corporate disclosure, particularly in its documents for the Securities and Exchange Commission (SEC). Using these documents, investors can find out which TV channels are doing well, which movies were the most successful, and how much customers are spending per room per night at the company’s parks and resorts. All this information is highly useful as a shareholder (or potential shareholder) and it also helps hone your market view.
At the end of the day, business conditions at Disney are very good and highly profitable. It’s a great business to be in currently with good near-term operating momentum.
Disclaimer: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. The opinions in this e-newsletter are just that, opinions of the authors. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose.
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