DIS: Believe in the Magic
In a recent article I made the suggestion that investors should avoid buying media and entertainment conglomerate Disney(DIS) ahead of its earnings announcement and wait for the eventual pullback to $40.
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My concern was that the stock had reach a valuation I considered expensive when compared to other media names such as Time Warner(TWX) and CBS(CBS) . Could it still have more upside momentum?
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Also of concern was the fact it was trading only percentage points away from its 52-week high. Logic suggested all the good news had been priced in -- except Disney had a different opinion.
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The Magical Quarter
The company did everything possible (and then some) to make doubters like myself believe in the magic. It reported an increase of 21.3% in net income above what it earned in the same period of a year ago -- reaching $1.22 billion on revenue of $9.62 billion, topping the $9.56 billion expected by analysts.
The company beat on both the top and bottom lines. Analysts had expected earnings of 55 cents per share and Disney reported 58 cents a share. What fueled this performance was the company's strong growth in its consumer segments, theme parks and its popular line of television networks. This is even though its revenue from it movie studio dropped by double-digit percentage points.
What this tells me is that Disney (in spite of its size) is growing much faster than rivals such as Time Warner, which reported an increase of 6% in adjusted operating income to reach $1.35 billion, while operating margin expanded 30 basis points to 19.4%. Overall the numbers were close to perfect except for some slight declines in studio revenue.
Moving forward