Walt Disney Co (The)

NYSE:DIS   4:00:00 PM EDT
+0.93 (+0.98%)
: $94.59 -1.24 (-1.29%)
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Why Disney is Crushing It

##Symbol## DIS

The Walt Disney Company (DIS)
111.2515 +0.1915 (0.17%)
Sector: Media
Published by Capital Market Laboratories on 2015-06-17

What does the rating mean?
3-Month Stock Move: +3.6%
6-Month Stock Move: +23.4%
12-Month Stock Move: +33.6%
30-day Option Implied Volatility: 16.3%
Implied Stock Range: ($107.10, $115.40)
What does "implied stock" mean?

What once was a "boring" blue chip has now turned into a flexible, adapting and content collecting machine. Disney has seen revenue (TTM) and net income (TTM) rise to all-time highs for more than five consecutive quarters. 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."

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. And, I gotta tell ya, I'm bullish on this story as well. Just wait until you see the trends in this firm's fundamentals and the wonderful stock price chart.

Here are the earnings estimates for next quarter compared to last quarter.
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-08-04 $1.43 $13,149.5 M $13,145.0 M $12,461.0 M Provided by ZACKS

Here is a summary of the core fundamentals that drive the four star fundamental rating.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 50,707 47,104 43,765

Operating Margin (QTR) 1.332 1.34 1.26 FALLING

Net Income (TTM US$ Millions) 8,034 6,998 5,970

Levered Free Cash Flow (TTM US$ Millions) 5,635 6,968 5,698 FALLING

Capital Expenditures (TTM US$ Millions) 3,857 3,036 2,792

Stock Returns and Chart

DIS is up +3.6% over the last three months and up +23.4% over the last six months. The stock price is up +33.6% over the last year and more than 70% over the last two-years.

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). The name for this trend is very technical, it's called ,"stock goes up."
Click here to interact with this stock chart

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

Revenue (TTM US$ Millions) 50,70747,10443,765

Aside from the stock price, revenue (TTM) is probably the most breathtaking trend. Revenue on an annual basis has risen 13 consecutive quarters to all-time highs for each quarter.

Revenue over the trailing twelve months (TTM) for DIS is up 7.65% from a year ago and 15.86% over two-years.

What do all these numbers mean?
DIS's fundamental rating benefited these results:
1. The one-year change was positive (but no extra points were given for a large percentage increase).
2. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

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

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Operating Revenues/Operating Expense 1.3321.341.26FALLING

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 1.332. While the number is down from a year ago, it's actually up from two-years ago. While these numbers seem small, they are not. A giant like DIS raising its operating margin over a few years this much is quite an accomplishment.

What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.34. 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).

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

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Net Income (TTM US$ Millions) 8,0346,9985,970

With the rising revenue and generally (longer-term) rising operating margin, earnings are following. In fact, Disney has broken its own all-time highs in earnings for seven consecutive quarters to a most recent trailing-twelve-month level of over $8 billion. That's an increase in the most recent year from $6,998 (million) or a 14.80% rise.

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 rising bars from a year ago (four quarters ago).

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Levered Free Cash Flow (TTM US$ Millions) 5,6356,9685,698FALLING

So with all this good stuff, the question can be asked, "why is this not a five star rating?" That's a fair question, and here's the fair answer.

Levered Free Cash Flow (TTM US$ Millions) (which is a critical determinant of stock price since market cap is the present value of all future free cash flows) for DIS is falling (it was $7 billion one-year ago). For the most recent trailing-twelve-months the company reported Levered Free Cash Flow (TTM US$ Millions) of $5,635 million. That's a decrease in the most recent year of 19.12%.

This cash metric is also down $-62 million from $5,698 million two-years ago. I do note in the chart that this trend is actually pretty apparent and non-trivial.

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time.

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Capital Expenditures (TTM US$ Millions) 3,8573,0362,792

This is a great chart for DIS if you're a bull. Capital Expenditures (CapEx) (TTM US$ Millions) is trending higher meaning that for at least five consecutive quarters (seven in this case), it's been rising. Several consecutive increases in capital expenditures may be a sign of solid investment in the future (if costs are under control). Note the trend in the chart below.

Capital Expenditures (TTM US$ Millions) in the most recent quarter for DIS was $3.85 billion, up 27% from a year ago and 38% from two-years ago. The firm is investing in theme parks and other assets.

In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars.

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Disney has been pouring money into CapEx while revenue and earnings are hitting all-time highs. We do see a slip in free cash flow which is noteworthy, but the rest of the firm's numbers look very good. The acquisition and collection of assets surrounding the most powerful brands is a stroke of genius that could produce more revenue and earnings all-time highs for considerable time. While the future is ever unknown, from the present, Disney looks poised to do some very good things for its shareholders.