Could Disney Be the Happiest Investment on Earth? + Vic Wisemann’s Thoughts on: EK, MU, GS, AAPL, AA, BAC, DIS
 InvestorsObserver Featured Contributor Vic Wisemann |
The market is on track to report one of the best quarterly earnings seasons on record. At least, that is, in terms of the number of companies that beat market expectations with their profits. Nearly four out of five S&P 500 companies that have reported fourth-quarter earnings have beaten consensus forecasts on the back of higher-than-expected jumps in revenue.
S&P companies are now set to break a run of nine consecutive quarterly declines in profits. But the performances have not translated into increased optimism over the outlook for 2010. Many analysts remain cautious over the impact of the withdrawal of economic stimulus programs. Reduced rebuilding of inventories held by companies is also a concern.
As of last Tuesday morning, nearly half of the S&P 500 companies had reported earnings, with 78% of companies exceeding earnings per share estimates and 8% matching their earnings estimates. That leaves just 14% posting earnings below estimates. All in all, that seems like a pretty good result. Not spectacular, but still pretty good. As a comparison, at the same point last year, 35% of the companies reporting had missed earnings estimates and only 56% had beaten estimates.
Eastman Kodak (EK) has had the biggest percent surprise to the upside, followed by Micron Tech (MU). In absolute dollars, Goldman Sachs (GS) still leads with a surprise of over $1.5 billion, followed by Apple (AAPL) with a $1.4 billion surprise. On the downside, Alcoa (AA) leads the losers, reporting an 83% miss. In absolute dollars, Bank of America (BAC) leads with its $795 million negative surprise.
Read on to see if Disney could be the happiest investment on earth.
FREE for 90 days: Get the InvestorsKeyhole Service and our other premium investor services. Plus Over $1,000 In FREE Bonuses! CLICK HERE to begin your 90 DAYS FREE. We can make this 90 day FREE offer because we are confident you will find our service an essential part of your investing toolkit and stay a subscriber for many years to come. Our biggest risk is that we do find people cancel their subscriptions when they move to their own private islands without internet access. |
In this environment, can Walt Disney (DIS) manage to exceed expectations with a fantastic quarter and beat the odds? A little Disney magic will be needed for the company to thrive across the board. Could it be that Walt Disney will continue to shine even in an economic recession?
Disney is the largest media and entertainment conglomerate in the world and is scheduled to report December 2009 quarter (First Quarter 2010) results on Tuesday, February 9, 2010. In the previous quarter, the company bettered the street's expectations comfortably. But, the year prior quarter showed losses which may still weigh high on investors' minds.
The company owns and operates media networks as well as parks and resorts. It is also engaged in making movies and marketing consumer products. The company has operations in North America, Europe, Asia Pacific and Latin America. Walt Disney operates through its four business segments: media networks, parks and resorts, studio entertainment, and consumer products.
The company has been growing recently through acquisitions At the end of last year, Disney completed its acquisition of Marvel Entertainment. The cash and stock deal worked out to have a final value of approximately $4.24 billion. Marvel shareholders received $30 per share in cash and approximately 0.745 Disney stock for each Marvel stock they owned.
Walt Disney, thus, acquired Marvel Entertainment’s strong global brand and world-renowned library of more than 5,000 characters, which include iconic characters such as Iron Man, Spider-Man, X-Men, The Incredible Hulk, The First Avenger: Captain America, Fantastic Four and Thor. The deal also provides Disney exclusive control over Marvel Entertainment’s licensing, publishing, and film production divisions.
Disney has long been dominated by female characters such as ‘Hannah Montana,’ ’Cinderella’ and ‘Snow White,’ and has been struggling to achieve similar success with male characters. The acquisition of Marvel provides Disney with brands and characters targeting young males.
The stock has regained its upward trend after following the rest of the market in posting losses to start out the year. However, there are still areas for concern. Disney generates a large percentage of its revenue from advertising. If there is a material decline in ad revenue, the company's results and investor enthusiasm may be dampened. The Entertainment business is inherently difficult to predict, and an underperforming film slate could adversely affect earnings as well.
One last area of concern for the company is protection of intellectual property. Disney's business depends heavily on the protection of its intellectual property. A significant growth in the distribution of the Company's intellectual property by others without proper authorization or compensation could materially affect operating results. The protection of this property is of paramount importance to the continued profitability of the company.
One positive for the company is the strong management team. Management has shown a strong ability to identify and develop new entertainment franchises and to effectively distribute those franchises across multiple platforms in domestic and international markets. In addition to the recent Marvel acquisition, Disney will acquire 10% stake in POW! Entertainment Inc., a company led by Spider-Man co-creator Stan Lee.
Disney has undertaken several growth initiatives, such as increasing Internet presence, expansion of international cable network and theme parks, investment in gaming and increase of content revenue through new media channels. The company has room to expand globally, especially in its park and resort business. There are initial plans in place for a Disneyland to be built in Shanghai in the coming years. This new property could draw traffic from the growing mainland China market.
The ESPN network of channels holds a dominant position in sports. Disney has agreements to carry ESPN with large cable, satellite, and telecom distribution partners, which are largely locked in through 2012. Moreover, many analysts expect ESPN to continue to be the key revenue and operating income performance driver in Disney's cable segment and for the company overall.
Disney should trade at a premium to other media conglomerates due to the strength of management and the competitive positioning of its businesses.
If you are considering a trade in DIS, consider the March 27/25 bull put spread for a 22 cent credit. The trade generates a very nice 12.4% return (115% annualized) and the stock would have to fall over 9% to hurt the position.
The stock market can be a harsh mistress, so be absolutely certain you understand the risk profile and rewards potential of any trade before you put capital at risk.
If you have had any additional thoughts, ideas or super hero ideas we can sell to Disney, please e-mail me at vwisemann@InvestorsObserver.com.
FREE for 90 days: Get the InvestorsKeyhole Service and our other premium investor services. Plus Over $1,000 In FREE Bonuses! CLICK HERE to begin your 90 DAYS FREE. We can make this 90 day FREE offer because we are confident you will find our service an essential part of your investing toolkit and stay a subscriber for many years to come. Our biggest risk is that we do find people cancel their subscriptions when they move to their own private islands without internet access. |