Walt Disney (NYSE: DIS): A Fairy Tale Growth Story
Sometimes we can't avoid running across some of the best investment opportunities. They're often right in front of our eyes.
Case in point: As I watched ESPN's SportsCenter for the third time this morning, I saw another trailer for Iron Man 3.
While checking for showtimes, it hit me. This is all Disney... or the Walt Disney Company (NYSE: DIS).
Well, I knew it was all Disney, but the monstrous movie dollars the company was raking in piqued my interest. Is the company a monstrous entity that's going to plow its way forward no matter what, or is the stock another John Carter movie away from being a big mistake?
At the moment, shares of the company trade near record highs. Disney beat Wall Street expectations for the first quarter of 2013, showing growth across all five of its divisions.
Net income increased 32% to $1.51 billion from $1.14 billion a year ago. Earnings per share came in at $0.79. The Street expected $0.77.
Revenue was $10.6 billion - good for a 10% jump. That also beat the expected forecast of $10.5 billion.
Numbers are nice but it doesn't tell the entire story. There are three parts of Disney that show us how the company will do going forward.
#1: Network Growth
ESPN is a cash cow. Some analysts had concerns about the costs of sports programming and lackluster ratings. However, the network remains the major driver of growth due to its high affiliate fees.
Overall, operating profit for all of Disney's cable networks increased 15% to $1.72 billion - and ESPN was the catalyst for this growth with its ad revenue. Advertising sales were up 4% for the first quarter and are up 10% for the current period.
Recently, Disney CEO Bob Iger was asked how much more he believed ESPN could expand. Mr. Iger responded, "We think ESPN's future, in terms of its growth trajectory, is actually quite good."
#2: Walt Disney Resorts
Disney's resort business was the star of the quarter - with operating income soaring 73% to $383 million.
The success comes thanks to recent expansion efforts. Under Iger's command, Disney spent over $1 billion as it made improvements to its resorts in California and Florida, opened three properties and purchased two new cruise ships.
A fresh outlook on the global economy has also been beneficial for its vacation destinations. The better the economy, the more folks flock to a vacation resort. Overall revenue was up 14% to $3.3 billion because of new attendance records worldwide. Domestic attendance rose 8% and sales were up 10%.
When it comes to Disney's movie business, it's no longer just about the Mouse. The company owns the rights to some of the most popular movies ever created. Through acquisition over the last seven years, it has brought Pixar (in 2006) and Marvel (in 2009) into the fold.
But here's the part that should really excite you about the future. Disney has hit this segment out the park.
Let's look at Iron Man 3. Released on May 3, the movie made $175.3 million on its opening weekend at the box office - the second-highest initial take in history. It's expected the movie will eventually gross more than $1 billion.
Guess what was No. 1? Disney's The Avengers took the prize just last year - and that was the culmination of four other Marvel movies.
In other words, Disney knows how to work an asset.
Studio Entertainment revenue jumped $1.34 billion in the first quarter - a 13% increase. This business also reported a $118 million profit. And that doesn't include Iron Man 3, which was unveiled after the books were closed on the quarter.
With the $175.3 million that the movie produced in its opening weekend, investors should expect this business to do even greater things in the next couple of months.
And Then There Was Star Wars...
Disney has Pixar. It's got Marvel. And now, with a $4.1 billion deal last October, it has Lucasfilm.
This means it owns the Star Wars franchise.
We just saw what Disney did with Marvel, now it will try to duplicate this success with Luke Skywalker, Han Solo and the rest of the Republic. Disney plans to grow and assertively market the saga by putting out a new Star Wars movie every year starting in 2015.
Related to this news, last week Disney and Electronic Arts (Nasdaq: EA) made the announcementthe companies agreed to a new multiyear licensing deal where EA will make Star Wars-based video games. Disney stated that it will keep the rights to create mobile, social and online games for the Star Wars franchise in-house.
Disney has done well utilizing its content and strong brands across as many business divisions as possible - like its resorts and toys. With the endless amount of Marvel and now Star Wars characters, expect Disney to use all of this content and intellectual property to increase profits across all segments.
Shares of Disney currently trade at 20.1 times the $3.29 a share that the company has earned over the last year. For this year, expect earnings of $3.46 a share - giving the shares a forward price-to-earnings ratio of 19.1.
Disney is strong and diversified... and we're seeing growth across all its business segments. Best of all, shares are cheap, proving there's still time to jump on the train.