- Walt Disney offers a unique product that it can leverage across different mediums.
- Rock solid fundamentals sustain Walt Disney Stock.
- Walt Disney Stock currently trades at a reasonable valuation.
Owning shares in a publicly traded company represents true ownership of an underlying business. Optimally, business owners would want to sell a product that no one else offers. Entertainment company, $ DIS represents one of those companies.
Walt Disney has a unique portfolio of brands
Walt Disney possesses a pretty unique product portfolio. The company houses characters, such as Mickey Mouse, Donald Duck, and Goofy that are traditionally identified with Walt Disney, and can’t be legally duplicated. There are no other characters like these anywhere.
Moreover, the company owns the powerfully creative Pixar Animation, which brought the world, Cars, Toy Story, and Monsters, Inc. Walt Disney also owns Marvel, which is home to more than 8,000 characters, according to company management. This gives Walt Disney vast storytelling opportunities. Walt Disney’s LucasFilm also allows the company to leverage the infamous Star Wars science fiction saga and eventually Indiana Jones.
Walt Disney also provides entertainment with its ESPN brand, which distributes sports and related entertainment on a wide scale. In the most recent earnings call, Walt Disney’s management claimed that ESPN is the “number one brand in sports media”. Walt Disney retains license agreements to distribute sports programming for the NFL, NBA and Major League Baseball over the next 11 years.
Leverage into other mediums
Walt Disney’s omni-channel strategy represents its greatest strength. The company can take its fictional characters and utilize them in many different forms, including: theme parks, motion pictures, comic books, television shows, cruise lines, and more. For example, Iron Man, which started out as a comic book character translated into a series of blockbuster films. Walt Disney now plans on opening an Iron Man experience in its Hong Kong theme park in 2017. Walt Disney’s management expressed interest in incorporating more Marvel characters into its theme parks. Most notably, the company will be opening a “Star Wars Land” in a few years that will provide an “immersive” Star Wars experience intended for consumers to “feel like they’ve stepped into the world of Star Wars.”
Walt Disney stock is supported by excellent fundamentals
Walt Disney‘s revenue and net income expanded quite steadily at a rate of 35% and 127%, respectively, between 2009 – 2014 (see charts below). It’s worth noting that the company doesn’t perform as well during recessions, as consumers forgo recreation for the more basic necessities during difficult times. So far this year, Walt Disney has grown its revenue and net income by 7% and 13%, respectively, year-over-year, which isn’t too bad for a large company.
Walt Disney has a strong balance sheet. In the most recent quarter, the company had $4.5 billion in cash equating to 10% of stockholder’s equity, which could be better but remains acceptable in this case due to its prudence in other areas. The company keeps long-term debt at a very prudent 26% of stockholder’s equity.
Walt Disney also manages its dividend at a prudent level. Last year, the company only paid out 23% of its free cash flow in dividends with 42% being paid out so far this year. The company currently pays its shareholders $1.32 per share per year and yields 1.2% annually.
Walt Disney stock valuation not too high
Walt Disney also trades at a lower valuation than you might expect for a company that executes well on its strategies. Currently, the company trades at a P/E ratio of 24 vs 22 for the S&P 500 as a whole.
Walt Disney offers unique products and experiences in a highly commoditized world. The company’s strong portfolio of brands and multiple channel strategy, along with the capability to execute on it, give Walt Disney a competitive edge. This makes Walt Disney a compelling business to own over the long-term. Investors should buy shares adding more during a downturn.