Ahead of the Tape: Disney's Tale Moves Toward Happy Ending -- WSJ
May 10 2016 - 3:02AM
Dow Jones News
By Steven Russolillo
Three months ago, investor sentiment surrounding Walt Disney Co.
was in the dumps. Not even the successful revival of "Star Wars"
could shake the negative narrative. Trouble at ESPN was all
investors cared about. The shares shed one-quarter of their value
from November through February.
What a difference three months can make.
Disney stock has since been on a tear, rallying nearly 20% from
a February bottom and far outpacing the S&P 500's rebound. Much
of that is thanks to chief Robert Iger's forceful defense of
ESPN.
In February, he surprised investors by saying the sports network
had a small uptick in subscribers following years of declines. Even
amid rising programming costs, Mr. Iger noted the idea that ESPN
was cratering in the cable cord-cutting age was "just
ridiculous."
That helped lift the cloud of negativity. And, as Disney reports
fiscal second-quarter results Tuesday, other aspects of its
business should give investors even more reasons to cheer. Analysts
polled by FactSet estimate earnings for the period through March of
$1.39 a share, up 13% from a year ago. Revenue is expected to have
increased 6% to $13.2 billion.
One often overlooked part of Disney's results is its theme parks
and resorts. As Disney's second-largest segment by revenue, this
generated $16.1 billion in revenue in fiscal 2015. That was nearly
one-third of the company's total and more than double that of
Disney's studio segment. They produce about one-fifth of operating
profit, also second-biggest after media networks.
Domestic theme parks have benefited from rising attendance and
higher consumer spending. And while international parks have
struggled, optimism is building ahead of next month's launch of
Shanghai Disney Resort. Analysts at J.P. Morgan estimate it alone
could generate roughly $1 billion in revenue by fiscal 2017 and
about $50 million in operating income.
Disney's diversified portfolio of businesses has the potential
to help withstand additional weakness ESPN might have in store.
Furthermore, Disney's valuation looks compelling. Fetching 17 times
projected earnings over the next 12 months, the stock trades at a
6% discount to its average multiple over the past three years.
This stock might have an enchanting ending after all.
tape@wsj.com
(END) Dow Jones Newswires
May 10, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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