Are Record Earnings Enough To Reenergize Disney Stock?
Walt Disney Co (NYSE:DIS) produced a very good quarter with Star Wars, not surprisingly, being a boon to earnings. The great numbers, however, haven’t translated into gains for DIS stock.
Investors figured there were very good odds that Disney would produce another great quarter. The fact of the matter is that the company’s numbers genuinely were very good, though subscriber growth for television networks is a future concern as individuals unplug.
So, it’s not surprising at all for Disney stock to be selling off after producing a great quarter.
The company’s first fiscal quarter of 2016 (ended January 2, 2016), saw record income of $2.9 billion compared to $2.2 billion in the comparable quarter.
Most impressively, diluted earnings per share during the quarter grew 36% to $1.73 (28% excluding some one-time items), which for any blue chip multinational is a very good accomplishment.
Disney’s latest quarter represents its 10th consecutive quarter of double-digit growth in earnings per share and the company’s share price performance reflects this.
DIS stock has been selling off in this correcting market. Considering the company’s continued solid prospects for the next several years, this position is not expensively priced at all.
The stock chart for Disney stock is featured below:
Chart courtesy of www.StockCharts.com
Naturally, the company’s studio entertainment division produced the strongest comparable growth in the most recent quarter (sales up 46%).
But also notable was continued strength at the company’s parks and resorts division, which improved total revenue eight percent to $4.3 billion. Media networks, which is Disney’s largest revenue contributor, saw its fiscal first-quarter sales also improve eight percent to $6.3 billion.
Profitability growth at the company’s studio entertainment, parks and resorts, and consumer products divisions was extremely robust in the latest quarter.
However, the media networks segment’s operating income was down and this is what is concerning institutional investors.
Higher programming costs at ESPN, unfavorable currency translation, and a decline in total subscribers in the Disney media networks universe offset and increase advertising and affiliate fees.
The Bottom Line on DIS Stock
So, the bottom line on DIS stock is that it remains a solid brand with growing businesses available at a reasonable price to investors.
Disney now pays dividends on a semi-annual basis. In fiscal 2015, the company’s total dividend payment to stockholders improved 19% over fiscal 2014.
In order to keep shareholders happy going forward, it’s reasonable to expect another hefty dividend increase from the company, along with continued share repurchases.
This remains a market where institutional investors are very much looking one to two years out. The correction, while being the result of a multitude of catalysts, is actually way overdue.
Accordingly, this is a great environment to consider some of the market’s best-branded businesses. Among investment-grade blue chips, Walt Disney Co offers a great package of positive attributes.
The fact of the matter is that Disney’s high single-digit top-line sales growth will still be able to produce a double-digit improvement in its bottom line. Given the stock’s current valuation, which is reasonable, this position remains attractive among dividend-paying blue chips.