Why Disney Shares Shine: Step Aside, Mickey and Goofy – SportsCenter Coming Through
The economic news of late suggests that visits with Mickey Mouse & Friends are rather low on the to-do list for most people, especially with tickets alone for the Magic Kingdom running about $350 a day for a family of four. So who, exactly, do investors think are making The Walt Disney Co. (DIS) share price worth an all-time high these days?
Investors have been so impressed by Disney’s success with this group that they have ramped up the company share price throughout the recent market unpleasantness. Disney’s share price is smoking the S&P 500 so far this year.
Turns out that Disney, founder of Disneyland, host of cruise ships and creator of blockbuster theater successes, is especially good at figuring out what people will sit at home and watch on television. And while the kiddies may be hooked on Disney cartoons, it is adult sports fans that can’t seem to live without the company. Cable networks and cable subscribers pay up for its ESPN network programming, and that’s what provides the bulk of Disney’s growing profits. Underlying profits are up nearly 10% in the past year alone.
ESPN provides a big chunk of Disney’s revenue growth and more than half of its operating profits. According to the company, more adults watched ESPN last year than any other cable network. ESPN has kept Disney’s revenues growing at a steady clip even while other operating segments were more mixed.
Not that there have been many questionable results in any Disney segment in recent months. The Avengers, Disney’s latest action hero movie, broke box office records in several countries. That should put an end to the remonstrations Disney has endured for its $4 billion of Marvel Entertainment a few years ago. It also will more than offset the much-publicized recent loss from John Carter – a piddly mistake in the scheme of things only newsworthy because Disney makes so few.
The Disney Channel, which is really more than 100 actual channels, has grown so confident in its ability to attract advertisers that it’s become very picky about which ones it will take. Over the next couple of years, it will turn away advertisers that hawk particularly sugary or fatty foods to children. Ad revenues are up at ABC Studios, owner of some very popular non-cable programming, like Grey’s Anatomy and Modern Family.
There’s nothing cheap about Disney’s share price lately, which is why they get as many hold recommendations as buys now. Its PE ratio of nearly 17 is at the high end of its post-recession range.
For long-term investors, though, the shares today offer a couple of comforts. A recent dividend hike puts the normally stingy Disney yield in at least in modest territory, around 1.3%, and the company tends to be generous with stock buyback programs. It has plenty of cash to maintain these efforts.
ESPN and television programming generally are overall bigger parts of the company now than they were in the past recession. If the worldwide economy does weaken, perhaps consumers will cling to those cable subscriptions even as they cut back on vacations.
Then there’s that aforementioned Magic Kingdom. Last quarter, while Europe’s economy went into meltdown and the U.S. rethought recovery, attendance and spending was up at most Disney theme parks. Operating income from them was up some 53%. Maybe Disney knows how to handle a recession after all.
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