As you know, the Walt Disney Company is an entertainment company that operates in four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media. It has struggled to gain momentum but today the stock is rallying hard. Why?
Well of all the segments the media networks segment, which includes cable and broadcast television networks, television production and distribution operations, domestic television stations, and radio networks and stations, has done the worst. If we back this out, the other segments have been strong, and are being driven by a number of tailwinds. Take for example, under the Parks and Resorts segment, the Company’s Walt Disney Imagineering unit. This one designs and develops new theme park concepts and attractions, as well as resort properties. This has been killing it with a strong economy. But it hasn’t stopped there.
The studio entertainment segment produces and acquires live-action and animated motion pictures, direct-to-video content, musical recordings and live stage plays. It has had a smashing success with Coco, as well as the purchases of Marvel and Star Wars rights. It is pretty strong. Some weakness has persisted in the games, , books, magazines and comic books. Finally, the only other major weak sport is ESPN, mostly on the back of getting too political.
So what is going for it? We want to mention a few things. Overall Walt Disney is a good business with 7% CAGR projected growth as the United States and foreign economies grow going forward, with the increasing demand of Disney content by new generations.
The good earnings and revenue growth provides DIS the capability to continue its growth as the cash flow increases and they buy more bolt on companies like Star Wars and Pixar. They also have a $6 Billion stock buyback program which should help earnings/share increase, in addition to a growing dividend that is paid on a semi annual basis, and was recently raised (see our thoughts here).
Also as a tailwind, we have President Trump wanting to lower corporate taxes on income. As the corporation tax rate is lowered earnings of Walt Disney business income should increase.
The economy is showing moderate economic growth right now (about 2.9%), and the FED has raised rates in June 2017, with future rate increases dependent on the United States economy and inflation.
We believe DIS has good growth and will continue as the United States and foreign economies grow.
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