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The Walt Disney Company
Would Fit Nicely in Most Equity Portfolios

Value Line’s Ian Gendler recently spotlighted The Walt Disney Company (DIS) a Dow-30 component and one of the world's largest entertainment conglomerates. DIS owns various media networks, Hollywood studios, theme parks, and resorts. The California-headquartered corporation employs approximately 195,000 individuals and has a market capitalization of about $180 billion. Disney got off to a sluggish start in fiscal 2017 (year ends September 30th).

In fact, the company experienced softness in all of its categories, save for its Parks & Resorts segment. In all, share earnings declined 10% to $1.55, for the December period, on a 3% revenue drop. That said, some of the soft comparisons were due to the tremendous gains Disney experienced in the year-ago period, spurred by the box office success of Star Wars Episode VII. The tailwinds from this film, as well as Frozen, will continue to subside, but the reboot of Beauty and the Beast, and a strong summer movie slate should offset some of that decline in the back half of the year. All told, for fiscal 2017, we expect that the top and bottom lines will eke out small gains. On a brighter note, we estimate that share net will increase 5%-10% in fiscal 2018 (begins October 1st), on a 3%-5% revenue advance.

We applaud management's strategy of aggressively investing in the business. Indeed, Disney has been bolstering its core brands and content. Over the last few years, it has expanded its Parks & Resorts segment, opening Shanghai Disney, and will likely further expand its international and domestic theme parks in the coming months. What's more, we anticipate that the company will focus on technological innovation, especially to support its Media Networks division.

Disney plans to launch a new ESPN streaming service, with the help of its BAMTech partnership, and we would not be surprised if it concentrated on strengthening its mobile capabilities and/or multiplatform opportunities to capture more cord-cutting viewers. In sum, our long-term view of Disney's prospects is quite positive, and we project that share earnings will exceed $7.50 by the 2020-2022 time frame.

As for the stock, although it appears fairly valued at the current juncture, we continue to consider Disney as a core holding that would fit nicely in most equity portfolios.

Editor’s Note: Ian Gendler is Executive Director, Value Line Research, www.valueline.com.


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