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The Walt Disney Co (DIS) Trade Card™

The Walt Disney Co (DIS)
95.1 0.18 (0.19%)
Sector: Media
Published by Capital Market Laboratories on 2020-04-02

What does this rating mean?
STOCK RETURNS
3Mo: -35.8%   |   6Mo: -26.4%  |   12Mo: -15.1%

TECHNICAL RATING
10DMA: $100.3  |  50DMA: $120.9  |  200DMA: $134.9
What does this rating mean?

Fundamentals     

➜ DIS generates $1.1766 in revenue for every $1 in expense, which is above the sector average of $1.05.

What once was a "boring" blue chip has now turned into a flexible, adapting, innovative, and content collecting machine. The bullish argument for Disney is that CEO Bob Iger, by collecting the Star Wars, Pixar and Marvel content into the Disney juggernaut has created a large pool of profits for several years to come. Bulls argue that that the once boring (and stuck) stock is poised for larger revenue, profits and a higher price. Further, the company has recently been saying that ESPN may bypass cable for streaming "eventually." Bob Iger said, "I think eventually ESPN becomes a business that is sold directly to the consumers." This is a crtical innovation given the trouble cable providers are seeing (more on that soon).

A live streaming service for sports events is a beautiful idea, beautiful capitalization on an already powerful asset and yet another creative way Disney has moved from old school to new school and mitigated risk of cable cord cutters. Further, now that Disney owns George Lucas' company, (in 2012) it has loads of money to make in the upcoming Star Wars movies. That's pretty exciting, but there is so much more.

Morgan Stanley's Benjamin Swinburne forecasts that the new Star Wars film could add $2 billion in retail consumer merchandise sales to the franchise's nearly $3 billion in annual sales. That would net Disney an incremental $200 million in license fees. Disney should also clear about $100 million in video game revenue in 2016, Swinburne estimates (Source: TheStreet.com).

The company got the cover story in the May 30th publication of Barron's where author Jack Hough notes that the firm "is a wizard at wringing profits from its theme parks and cruises, hit films and merchandise sales." Here's a chart of revenue in the blue bars and net income in the orange line.



But there's more...

Even though the firm makes money from theme parks, movie tickets and toy and game licenses, let us not lose the forest for the trees: Disney's media division is the single biggest business segment, accounting for more than half of all earnings (Source: Motley Fool) . Media networks generate cash through distribution fees, like the ones Disney charges cable companies for the right to carry channels like ESPN and Disney. But, as we all know, the the media business (and in particular the cable business) is getting disrupted in a rather abrupt way. According to the Motley Fool:


"The number of households subscribing to huge cable packages is down, and people are spending less time watching broadcast TV -- even if they're spending more time watching TV overall. So, Disney is having trouble finding growth in its biggest business: Operating profits there are up just 1.5% through the last nine months, compared to 19% for the rest of the business."
Source: Motley Fool

Now recall the possibility of spinning ESPN into a product that gets sold directly to consumers and bypasses cable altogether. That's a solid hedge for the firm from the larger scale issue with cable providers. On the other hand, we do have a very bullish phenomenon where consumer products sales are growing massively with a 37% growth in profit over the most recent three quarters. As we stated earlier, its been pure "wizardry" that has put together Frozen, Avengers and Star Wars product lines under one roof and the profits should be quite large.

China
It really wouldn't be a complete story for any multi-national firm without a discussion of China. Disney has built a massive Shanghai resort and the company has already stated that it will hurt earnings in 2016. The bullish argument is that this resort will be a multi-decade profit center once it's up and running given that China's "middle class" will grow from 47 million people in 2010 to 472 million people by 2020, per Bloomberg.



Stock Buybacks
As Disney stock had fallen late summer of 2015 and early fall, the company raised $2.4 billion for a stock buyback program. How's that for a bullish stance from the company?

DIS has seen revenue (TTM) rise over both one- and two-years by 26.5% and 34.9%, respectively. Revenue in the most recent trailing-twelve-months is $75.13 billion. Last year DIS reported $59.39 billion and two-years ago annual revenue was $55.70 billion.

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Technicals   |   Support: 88.8   |   Resistance: 115.27   

Swing Death Cross Alert: The short-term 10 day MA is now below the 50 day MA.

DIS has a one bull (lowest rated) technical rating because it's trading below the 10-day (short-term), 50-day (medium-term) and 200-day (long-term) moving averages.


Earnings Estimates
Earnings Date
2018-02-06
EPS
$1.59
Revenue (Mean)
$
Revenue (Median)
$
Last Quarter (Actual)
$20.86 billion


Fundamentals Rating Summary


Metric Current 1yr Ago 2yr Ago Direction
Revenue (TTM US$ Millions)Rising 75,125 59,386 55,704 Rising

Operating Margin (QTR)Trending Lower 1.18 1.32 1.33 Trending Lower

Net Income (TTM US$ Millions)Falling 10,300 11,379 11,351 Falling

Cash from Operations (TTM US$ Millions)Trending Lower 5,515 14,157 13,135 Trending Lower

Capital Expenditures (TTM US$ Millions)
Rising
5,019 4,679 3,564
Rising




Stock Returns and Chart


DIS is down -35.8% over the last three months and down -26.4% over the last six months. The stock has returned -15.1% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).

Note: You can change time horizons by clicking the or buttons near the bottom of the chart. You can examine a one minute day trading chart by clicking the at the top left corner of the chart.

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Now let's examine the visualizations of the critical financial measures.


Enter Symbol


METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 75,12559,38655,704Rising

Note that DIS is growing revenue by 26.5% year-over-year. Any number over 20% has an added impact on the fundamental (star) rating.

What do all these numbers mean?
DIS's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.

Let's look at Revenue (TTM US$ Millions) in the chart below.


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Enter Symbol



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Operating Revenues/Operating Expense 1.181.321.33Trending Lower

Operating Revenues/Operating Expense Trending Lower
Operating revenue over operating expense simply shows us how much revenue (in dollars) is generated for every dollar of expense. The ratio must be (at a minimum) above 1.0 in order for a company to turn an operating profit. For the latest quarter DIS showed a ratio of 1.18.

What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.32. In the last year we can see operating margins are decreasing but are greater than 1.0 for the most recent period.

DIS's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was negative (lowers the rating a little bit).
Finally, the down trend (consecutive quarters) in operating margin hurt the fundamental rating.

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Net Income (TTM US$ Millions) 10,30011,37911,351Falling

Net Income (after tax profit) over the trailing twelve months (TTM) for DIS is falling. For the most recent trailing-twelve-months (TTM) the company reported net income of $10,300 (million). That's a decrease in the most recent year from $11,379 (million) or a -9.48% change and a decrease from two-years ago of -9.26%.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. Note the falling bars from a year ago (four quarters ago).


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Cash from Operations (TTM US$ Millions) 5,51514,15713,135Trending Lower

Cash from Operations (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For DIS the metric is falling (it was $14,157 million last year). For the most recent trailing-twelve-months the company reported Cash from Operations (TTM US$ Millions) of $5,515 million. That's a decrease in the most recent year from $14,157 million or a -61.04% drop.

This cash metric is down $-7,620 million from $13,135 million two-years ago.

Cash from Operations (TTM US$ Millions) is trending lower meaning that it has dropped for at least five consecutive quarters (the annual number). This is quite unusual and has a negative impact on the fundamental rating

For our next chart we plot Cash from Operations (TTM US$ Millions) in the blue bars through time. Note the falling bars from a year ago (four quarters ago).



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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Capital Expenditures (TTM US$ Millions) 5,0194,6793,564
Rising

Capital Expenditures (TTM US$ Millions) in the most recent quarter for DIS was $5,019 million. CapEx is rising (7.27%) from last year's value of $4,679 million. Further, we can see that CapEx today relative to two-years ago is increasing (40.82%) from last year's value of $3,564 million.

In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars. Note the rising bars from one-year ago.


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