Hey Youtube, I'm Jimmy.
In this video I'm going to walk through my analysis of Disney ticker symbol DIS
this video is part of the series where we're analyzing all 30 stocks in the Dow
Jones industrial average. We're then going to take that analysis
and try to build a few great portfolios, likely a value portfolio growth
portfolio, and a dividend portfolio.
This is the ninth video in that series you can see a link to the entire
playlist in the description below. Okay,
so let's dive in to Disney's operations. Disney has had some interesting shifts
recently, at least with how they're going to
here's what their operational segments look like.
This is 2017, and as we can see,
Media networks is the largest segment and after that they have parks and
resorts, studio entertainment,
and then they have consumer products and interactive media.
Well, earlier in 2018 Disney announced a
strategic reorganization of its businesses going forward.
There's going to be a newly formed direct to consumer and international
segment. Then they combined parks and resorts
with consumer products to form parks, experiences and consumer products than
media networks and studio entertainment stay the same.
Now, what makes this important and
interesting is that this illustrates Disney's aggressive push towards direct
to consumer products, so much so that they created a segment,
especially for it now, they don't have any numbers just yet
since this doesn't take effect until 2019,
but still we have an idea of how it's going to shape up.
So let's take a closer look. So let's start with the newest one,
direct to consumer. So a few years ago,
Disney took a 33 percent stake in a streaming platform called Bamtech.
Since then, they've upped that state to 75 percent.
The rest of Bamtech is owned by Major League Baseball and the National Hockey
League. This acquisition is important because
this gives Disney the technical capability to manage.
Their recently launched espn plus streaming service and the Disney
streaming platform that they're expecting to launch in 2019.
The goal of this segment is to essentially go after the same market as
Netflix. Along those same lines,
Disney currently owns a 30 percent stake in Hulu.
A streaming service sets is very similar to Netflix,
although technically Disney has Hulu in their media segment for now.
Okay. Jumping over to media.
Disney is a bunch of products over in media.
They currently have. They're 80 percent ownership stake in
espn. Hearst owns the other 20 percent.
They also have their Disney channels currently Bamtech the company I
mentioned a moment ago. This is where that resides,
but we know that's going to move over in 2019.
Disney also has the ABC network. They have ABC television stations and a
few others. This is what revenue looks like,
that media segment since 2008, as we could see it's been doing fairly
well, although there was a slight pull back in
the past year. Okay.
Now moving over to their parks and resorts,
this is where they have their theme parks and they have their cruise lines,
things like that, and as you co uld see it's been doing
fairly well and the good news for Disney is that projections over the next few
years are quite positive for this segment and you can see that they have
they been going up every year except for a dip back in 2009,
2010, where it would make sense that this type
of business would struggle. Since parks are a cyclical business and
a recession would hurt them. Now shifting to the studio segment,
we can see that the studio segment is much more volatile than the rest of
their segments.
When we add projections, we can see that they're expected to be
higher in 2018, but then dip lower again in 2019.
And if we think about it, this makes sense,
this type of volatility from a business perspective,
since this segment includes brands like Pixar,
marvel, star wars,
all the Disney movies and Disney animations,
and depending on the movie that they release and the success of those
individual movies. Well revenues can swing a ton,
when we look at the consumer product segment,
we can see it's a bit less volatile, although it's not quite as consistent as
the parks and media segment. When we throw projections in there,
we can see that analyst seemed to be projecting somewhat of a flat segment.
Now this segment is where all the merchandise that Disney sells ends up
landing on as far as revenue is concerned,
and although we can see that this is the smallest of all their segments,
it's still got $5,000,000,000 in revenue,
which is a sizable amount of revenue.
Okay, so let's touch on some recent news and
Well, the huge one for Disney is there pending
acquisition of the Twenty First Century Fox company,
and if you've watched Disney at all over the past few years,
it's likely that you've seen at least stages of this pending acquisition.
Well, after battling with comcast for a bit,
Disney eventually won the bid for 21st century Fox earlier this year.
This acquisition gives Disney. Fox is part,
they own. Thirty percent of Hulu.
Dizzy now gets that. They also get 20th century Fox film box
TV studios and part ownership in Sky TV. Disney was already a juggernaut in TV
and movies and this only strengthens that position.
Now this deal is going to cost Disney over $80,000,000,000
in cash and stock. Much of that cash is coming in the form
of debt that Disney's in the middle of putting together.
Now this chart here, this chart shows a recently announced
long list of debt that they're using with a broad range of both retirement
dates, yields and loan amounts.
Okay. The green bars,
they show how much debt is being offered and as an example,
the tall one, this is one point 5 billion being
offered at six percent. It's the Blue Line that indicates the
yield and that particular bond is due in the year 20,
41. And interestingly you can see that they
offered $100 million dollars due in 20, 96.
That's a long, long time to hold the bond,
but some people bought into it. So it seems that the eight point two,
five percent yield is good enough yield for them.
Okay, so now let's get onto evaluation.
Let's start with a few different metrics.
First are forward. Pe is just under 16 x right now the Ford
p of the s and p 500 is about 17 x and if we look at Disney's own,
historical average would snip their three year average is 16 x and their
five year average is just 17 x.
now, if we take a peek at enterprise value to
Ebitda, well using consensus estimates,
these needs current forward enterprise value to Ebitda ratio is about 10 point
five backs while they're three and five year averages are almost exactly the
same. So based on these measures it seems a
Disney stock is fairly valued, so I think it's a good idea to check
competitors. So I went over and checked 21st century
Fox who Disney is in the middle of buying a large part of and I also
checked comcast who was actually in a bidding war with Disney for Fox.
Well Twenty First Century Fox trading at 21 times next year's earnings and that's
above their five year average of 16 times.
Now that's a special situation since they're being taken over and Disney's
paying, I believe $38 a share and then Fox is
spinning off some other pieces of the business,
so in theory that's worth something.
That's why you would get a premium to their historical average.
Meanwhile, comcast is trading at about 13 times
next year's earnings compared to their five year average of 17 times.
So when we look at Disney's comparables, it seems that Disney is fairly
reasonably priced right now. I'm a big fan of discounted cash flow,
so I went ahead and pulled down consensus estimates for the next few
years for free cash flow and when we use a nine percent wac and a two and a half
percent perpetual growth rate, it looks like these knees should be
trading at about $122 per share. Given that Disney is trading at about
$115 per share. It looks like there might be a little
room for move higher, but overall they seem fairly priced
relative to both comparables and the discounted cash flow.
Now, if I already owned Disney,
I may be perfectly happy sitting here and didn't theory watching the stock
move higher by just the required rate of return.
So I wanted to point out that discounted cashflow isn't saying that if you pay
more than the $122 calculated value, that you're going to lose money assuming
everything played out exactly as predicted.
Well, if you paid more than the 122,
well this would mean that your returns would be less than the discount rate,
which in our case is nine percent and if you paid less than the 122,
while your returns will be greater than our nine percent,
that's the goal to earn more than the required rate of return.
That's why we do this type of analysis. So how much more would you return?
Well, that depends on a lot of different
Probably not. Are Our projections of free cash flow
accurate? Once again,
probably not. Hopefully they're close,
but I doubt that they're going to be exact and they don't necessarily have to
be exact.
All we need them is to be close. Then what we can do is just make sure we
buy smart and this case pay less than than 1:22.
That will give you a better chance of getting your nine percent required
Disney seems fairly valued according to our calculations.
Does Disney make our final portfolio? I don't.
At this point they're going to make the value portfolio.
Since this price seems to be fairly valued,
I'm excited to see what happens with the merger with Fox,
how they go about raising the cash. Do they issue shares or more debt on top
of what we already looked at. I'm also excited to see what happens
with their new direct to consumer platform that's coming out and top 2019
now. I personally have two small kids and I
can't wait for this APP to come out. Ever since Disney took their stuff off
of Netflix, I've been anxiously awaiting the
opportunity to get the APP so my kids can use it.
So what do you think. Are you super excited about their new
director of consumer platform? What about the Fox acquisition?
Do you think that they deserve to be in our ideal portfolio?
Which one? Growth value dividend.
By the way, Disney stock pays about a one and a half
percent dividend, so let me know what you think in the
comments below and thanks for sticking with the video all the way until the end
and I'll see in the next video and if you haven't done so already,
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