Sunday, October 11, 2009

BAGAKOAA October, 11, 2009 It was too small a world.

October, 11, 2009 It was too small a world.

OK. It was a nice day today. The family and I were headed to Disneyland. There was no traffic on the freeway and it only took twenty two minutes to get to the happiest place on earth. THEN it took two hours to fight the traffic and get to the ticket lines which ere immense. We chose to get out of line and enjoy lunch at ESPN. “So what?”, you might say.

If we are at 9.8% unemployment, (actually higher in Orange County), where are all of these people getting 72 dollars to fight these huge crowds to stand in line and dump another 34(last known “gate” for Disney attendees). It got me thinking.

Has the economy rebounded enough to take another look at DIS. We have been in and out of the stock since 1985. It was actually one of the first stocks we ever bought. I remember my wife calling me at work to say buy more DIS they just bought ABC. So let’s take a look.

My last trade of DIS was in March of 2000. I got out in the low 40s. It’s now at 29ish and it doesn’t look like I missed anything except a drop in value and some dividends. It has been a while since I took a look at what DIS owns, so let me review.

DIS is a global entertainment company. They have media networks like ABC, Buena Vista, ABC Family Productions, ESPN, 233 TV and Radio Stations, The Disney Channel, about 30 massive websites, several global phone networks, theme parks, cruise lines, record companies, huge libraries of films, about a dozen magazine and hundreds of consumer product divisions.

Let’s lay some value for the company. Its PE is just under 17 which are lower than it’s 5 year high of 25.6, but better than the industry. I believe that would be the media industry. It is much lower than the S&P PE at 45. That still seems extremely high, the S&P that is. (And it is. I just checked the S&P 500 component website and 2009 estimated PE will finish about 19.) Price to Book is a reasonable 1.52 and even might be considered low considering how popular the name and brand is. The Return on Equity is 9.46 which I consider weak. Management efficient use of resources is in question at that level. Net Profit margin is 9.6 which is better than the industry, but not great compared to historical levels. 5 Year revenue growth is very impressive with year to year gains despite the bath the media industry has taken and is still stuck in. NIBT showed improvement year after except of last year. 2008 was about 4% off from 07 levels. That is respectable considering the economy. Cash flow has been steady generating about 5.4 billion for the last several years. They can pay off long term debt in about a year and a half from 2008 earnings. That is great considering much of their operations are capital intensive.

More recent revenue trends are tracking for a drop of about 9%. I think this could turn out to be a nice surprise as media is coming back on multiple platforms like TV, Radio, web, and DIS is well diversified.

If what we just saw at the theme park today, is any indication, that could be a nice surprise as well. The bad news is that the 28 dollar price is reflecting a 16 PE ratio based upon earnings estimates in 2010. Some price targets put it at 33-35 dollars a share next year. If Media recovers, and if consumer discretionary income recovers I think this could be a decent stock. There are just too many Ifs in the equation.

I am going to pass and put a limit buy in at 26.50. That would be an interesting entry point.

Salve Lucrum


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