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Should Disney (DIS) Stock Be in Your Portfolio?

Walt Disney Company (DIS) owns 100% of Disney Enterprises, Inc. which, together with its subsidiaries, is a diversified worldwide entertainment company with operations in five business segments: Media Networks, Studio Entertainment, Theme Parks and Resorts, Consumer Products and Internet and Direct Marketing. Disney Company is the second-largest media company behind Comcast Corp (CMCSA) which owns NBC Universal.

Media stocks have been doing quite well as of late though, and in the past of couple weeks, Disney has recently hit all-time highs in stock price at $90 per share. Given this surge, investors are probably asking; is this a good time to buy the stock as the holidays are right around the corner?

Over the past year, Walt Disney has traded in a range of $61.27 to $91.20 and is now at $89.38, about 47% above that low. In the last five trading sessions, the 50-day moving average has climbed 0.4% while the 200-day MA has risen 0.5%.

Shares of the Burbank-based entertainment giant closed Tuesday up 12 cents to $90.09 a share. It was the first time in more than 15 years that the stock ended a trading day above $90 a share. In Disney’s most recent earnings report, Disney posted net income of $2.25 billion for the quarter that ended June 28, up from $1.85 billion a year earlier. Revenue increased 8% to $12.47 billion.

Back in the 1980s and '90s, Disney shares traded above $100 -- but that was before a series of stock splits established new adjusted levels. Let’s take a look at the company’s earnings to get a better picture of where this stock might be headed next:

Company Earnings & Performance



-As you can see, Disney outperforms the S&P 500 in the past years and almost doubles returns on investment in stock. DIS has added close to 80% in the past two years, compared to the S&P 500’s still respectable return of just under 40%.



-Disney has been paying consistent payouts since 1986. On average, the company has consistently been increasing dividends each year since 1986. Currently, the yield for DIS is just under 1%, so while it isn’t a yield destination, it does provide some income.

Financial Statistics

Market Cap

$153.72B

Forward P/E

18.99

P/S(ttm)

3.22

P/B(mrg)

3.36

Profit Margin (ttm):

15.41%

Operating Margin (ttm):

23.76%

Return on Assets (ttm):

8.68

Return on Equity (ttm):

16.76

Revenue(ttm)

$47.99B

Gross Profit(ttm)

$9.45B

Net Income to Common (ttm):

$7.40B


-Some people might say that an earnings multiple of 18.99 is high for this type of company, but investors must keep in mind what the underlying business is and what it possesses for everyday consumers like you and I, which is some of the most well-recognized entertainment brands around.

Acquisitions

Disney is a massive company that can put up enough capital to acquire firms that most companies just cannot do. Even beyond the Marvel purchase, they have a knack for making the most of big content acquisitions like in 2006 when it spent $7.4 billion on acquiring Pixar. Acquisitions like these are game changers that move Disney’s stock because the crucial content of the companies acquired by Disney generate plenty of revenue.

The most recent $4 billion Lucas film buyout will also pay off for years, as the next highly anticipated part of the Star Wars saga rolls out.

When Disney purchased YouTube network Maker Studios in Match, Disney was able to instantly procure the 4 billion monthly view of the Maker’s content. In the following six months, that figure has more than doubled to 9 billion, so a $1 billion dollar purchase looks to have a very good return on investment.

Looking forward

Disney is the type of company that an investor does not day-trade on. This stock is arguably the type to buy and hold on to. The next few years are going to be huge for Disney with Star Wars VII, a movie that some believe could become the highest grossing movie of all time, with the potential to generate $1 billion in the first month. There will also be Avengers 2, which following the first move which broke the $1 billion gross sales mark, could crack the same billion dollar level as well.

We currently have DIS as a Zacks Rank #2 (buy) and the company has beat earnings estimates in the past year by an average surprise of 9.86%. Also, 80% of analysts have upgraded their earnings estimates for the next year in anticipation of big products coming from within Disney’s pipeline. Investors should keep in mind the future potential of Disney after all the acquisitions and new products it has in store for us, and consider putting this stock in portfolios now.

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