Can this Disney ride continue?
By MERISSA MARR
AP
Eds: Via AP. Note time element in graf 5.
By MERISSA MARR
The Wall Street Journal
In his first 10 months on the job, Walt Disney Co. Chief Executive Robert Iger launched into a frenzy of deal making and corporate reshaping that helped drive the stock price more than 20 percent higher. Now, as the dust settles, investors have shifted their gaze to next year, and some don't like what they see, prompting a string of analyst downgrades and estimate tweaks.
But while the bears have flagged a variety of concerns - from tough earnings comparisons at Disney 's theme parks to the rising cost of sports rights - a number of swing factors in the next year could come to the rescue. Among them: a recent round of cost-cutting at Disney's movie studio, the blockbuster performance of "Pirates of the Caribbean: Dead Man's Chest" and a shift in the amortization of the company's deal with the National Football League.
Kathy Styponias, an analyst at Prudential Equity Group, says the current consensus is missing these fundamental factors. She recently bucked the bearish trend with an "overweight" rating, the equivalent of a "buy," on Disney's stock. "There is significant upward bias to Disney's fiscal 2007 growth rate," Ms. Styponias said. Prudential and its affiliates own 1 percent or more of Disney stock. Ms. Styponias doesn't own Disney shares. Prudential doesn't do business with Disney.
Disney has been one of the best-performing stocks in media: Since Mr. Iger took the reins Oct. 1, the stock has rallied more than 22 percent, compared with about 6 percent for the Dow Jones Industrial Average (it is one of the 30 Dow stocks) and about 4 percent for the Standard & Poor's 500-stock index. Disney's shares hit a high of $31.03 in June.
At 4 p.m. Monday in New York Stock Exchange composite trading, Disney's shares were down one cent to $29.69, giving the company a market value of $66.40 billion. The company's estimated price-to-earnings ratio for the rest of 2006 is about 20, compared with a slightly cheaper 18.5 for rival Time Warner Inc. and a bit pricier 22.7 for News Corp ., according to Thomson Financial.
Lowell Singer of Cowen & Co. says the recent rally in itself is enough to take the sparkle out of Disney's stock.
"I do not expect the stock to continue to outperform at the rate it has over the last year," he said after cutting Disney to a "neutral." Cowen doesn't do any business with Disney, and Mr. Singer doesn't own any Disney stock.
But Ms. Styponias believes the stock will continue to outperform for three reasons: No other entertainment conglomerate has articulated its strategy as well as Disney; the company has a strong focus on return on invested capital; and there are few alternatives to put money to work.
Janna Sampson, a portfolio manager at Oakbrook Investments, which manages about $1 billion and holds 645,000 Disney shares for its clients, adds, "The stock was so depressed at the end of Michael Eisner 's term that the rebound just brought us back to the realm of normality, rather than taking us to any level of concern."
It didn't take long for Mr. Iger to win over investors. Within days of taking over last fall, he set the tone for his tenure by announcing a surprise deal to sell ABC shows on Apple Computer Inc.'s video iPod. The deal sent a clear signal that Mr. Iger wasn't, in the words of the Disney Channel hit "High School Musical," going to "stick to the status quo."
One of his boldest moves was the $7.4 billion acquisition of Pixar Animation Studios. The rationale went that animation was the heart of Disney, and it was something the company needed to get right.
The current consensus suggests Disney will post earnings per share of $1.48 for fiscal 2006 and $1.64 for fiscal 2007, according to Thomson Financial. That would imply a growth rate of 12 percent for fiscal 2006 and almost 11 percent for fiscal 2007. Disney announces its third-quarter results for fiscal 2006 next week.
Disney has been an active acquirer of its shares and is expected to continue to be so - something that will certainly help it reach its average double-digit earnings goal.
One sore spot in recent earnings has been the studio, due in part to a series of flops. In addition, a softer-than-expected debut for Pixar's latest movie, "Cars," fueled concerns that Disney may have paid too much for Pixar.
However, "Pirates of the Caribbean: Dead Man's Chest" has since cleaned up at the box office with a record opening and $660 million of ticket sales world-wide so far. That greases the wheels for the DVD later this year and a second sequel next summer. And it stokes interest in an updated version of the "Pirates" theme-park ride, as well as the "Pirates" videogame and merchandise.
The studio also recently announced an overhaul, with 650 job cuts and a shift in strategy that focuses more on Disney-branded movies. That move is expected to save around $100 million each year. Still, severance costs could pressure earnings in fiscal 2006.
At the media networks, which account for around 40 percent of revenue, ESPN is facing rising sports-content costs, and some analysts say it may be harder to deliver double-digit earnings growth next year.
The NFL deal could help some. Ms. Styponias notes there is an extra game in September - which will affect how Disney allocates the value of the deal's intangible assets. She says current consensus is underestimating the amortization for fiscal 2006 and overestimating it for fiscal 2007 by around $150 million, which could significantly affect earnings for both years.
Another possible boost: the renegotiation of Disney's cable deal with Comcast Corp. and Time Warner. And an upside could come if Disney decides to throw in the towel on its ESPN cellular-telephone service, which provides subscribers with scores, news and video highlights
One worry among some investors has been the ABC network. After a recovery driven by hits like "Lost" and "Desperate Housewives," some analysts are concerned there is only one way ratings can go: down. At the very least, higher costs from a slew of pilots and the World Cup are expected to hit fiscal 2006. However, new fall shows like "Ugly Betty" are getting positive early buzz.
At the theme parks, analysts have raised alarm bells as a successful promotion to mark the 50th anniversary of Disneyland draws to a close. A slowdown in consumer confidence is seen as a major risk there. Hong Kong Disney also is at risk of missing its first-year attendance goal of 5.6 million visitors, but the overseas parks are showing signs they could build momentum next year.
William Drewry, an analyst at Credit Suisse, who followed Ms. Styponias with a research note titled "The bears are wrong," says the parks should benefit from a positive shift in pension expense next year. He has the equivalent of a "buy" recommendation on Disney's stock. Credit Suisse has had a business relationship with Disney within the past 12 months.
http://money.aol.com/news/articles/_a/can-this-disney-ride-continue/n20060801095109990002
I thought it was an intresting article, it brings up some good points. I hope that when Iger sees that HKDL might not meet attendance goals, he thinks twice before building another resort location in Shanghi.
By MERISSA MARR
AP
Eds: Via AP. Note time element in graf 5.
By MERISSA MARR
The Wall Street Journal
In his first 10 months on the job, Walt Disney Co. Chief Executive Robert Iger launched into a frenzy of deal making and corporate reshaping that helped drive the stock price more than 20 percent higher. Now, as the dust settles, investors have shifted their gaze to next year, and some don't like what they see, prompting a string of analyst downgrades and estimate tweaks.
But while the bears have flagged a variety of concerns - from tough earnings comparisons at Disney 's theme parks to the rising cost of sports rights - a number of swing factors in the next year could come to the rescue. Among them: a recent round of cost-cutting at Disney's movie studio, the blockbuster performance of "Pirates of the Caribbean: Dead Man's Chest" and a shift in the amortization of the company's deal with the National Football League.
Kathy Styponias, an analyst at Prudential Equity Group, says the current consensus is missing these fundamental factors. She recently bucked the bearish trend with an "overweight" rating, the equivalent of a "buy," on Disney's stock. "There is significant upward bias to Disney's fiscal 2007 growth rate," Ms. Styponias said. Prudential and its affiliates own 1 percent or more of Disney stock. Ms. Styponias doesn't own Disney shares. Prudential doesn't do business with Disney.
Disney has been one of the best-performing stocks in media: Since Mr. Iger took the reins Oct. 1, the stock has rallied more than 22 percent, compared with about 6 percent for the Dow Jones Industrial Average (it is one of the 30 Dow stocks) and about 4 percent for the Standard & Poor's 500-stock index. Disney's shares hit a high of $31.03 in June.
At 4 p.m. Monday in New York Stock Exchange composite trading, Disney's shares were down one cent to $29.69, giving the company a market value of $66.40 billion. The company's estimated price-to-earnings ratio for the rest of 2006 is about 20, compared with a slightly cheaper 18.5 for rival Time Warner Inc. and a bit pricier 22.7 for News Corp ., according to Thomson Financial.
Lowell Singer of Cowen & Co. says the recent rally in itself is enough to take the sparkle out of Disney's stock.
"I do not expect the stock to continue to outperform at the rate it has over the last year," he said after cutting Disney to a "neutral." Cowen doesn't do any business with Disney, and Mr. Singer doesn't own any Disney stock.
But Ms. Styponias believes the stock will continue to outperform for three reasons: No other entertainment conglomerate has articulated its strategy as well as Disney; the company has a strong focus on return on invested capital; and there are few alternatives to put money to work.
Janna Sampson, a portfolio manager at Oakbrook Investments, which manages about $1 billion and holds 645,000 Disney shares for its clients, adds, "The stock was so depressed at the end of Michael Eisner 's term that the rebound just brought us back to the realm of normality, rather than taking us to any level of concern."
It didn't take long for Mr. Iger to win over investors. Within days of taking over last fall, he set the tone for his tenure by announcing a surprise deal to sell ABC shows on Apple Computer Inc.'s video iPod. The deal sent a clear signal that Mr. Iger wasn't, in the words of the Disney Channel hit "High School Musical," going to "stick to the status quo."
One of his boldest moves was the $7.4 billion acquisition of Pixar Animation Studios. The rationale went that animation was the heart of Disney, and it was something the company needed to get right.
The current consensus suggests Disney will post earnings per share of $1.48 for fiscal 2006 and $1.64 for fiscal 2007, according to Thomson Financial. That would imply a growth rate of 12 percent for fiscal 2006 and almost 11 percent for fiscal 2007. Disney announces its third-quarter results for fiscal 2006 next week.
Disney has been an active acquirer of its shares and is expected to continue to be so - something that will certainly help it reach its average double-digit earnings goal.
One sore spot in recent earnings has been the studio, due in part to a series of flops. In addition, a softer-than-expected debut for Pixar's latest movie, "Cars," fueled concerns that Disney may have paid too much for Pixar.
However, "Pirates of the Caribbean: Dead Man's Chest" has since cleaned up at the box office with a record opening and $660 million of ticket sales world-wide so far. That greases the wheels for the DVD later this year and a second sequel next summer. And it stokes interest in an updated version of the "Pirates" theme-park ride, as well as the "Pirates" videogame and merchandise.
The studio also recently announced an overhaul, with 650 job cuts and a shift in strategy that focuses more on Disney-branded movies. That move is expected to save around $100 million each year. Still, severance costs could pressure earnings in fiscal 2006.
At the media networks, which account for around 40 percent of revenue, ESPN is facing rising sports-content costs, and some analysts say it may be harder to deliver double-digit earnings growth next year.
The NFL deal could help some. Ms. Styponias notes there is an extra game in September - which will affect how Disney allocates the value of the deal's intangible assets. She says current consensus is underestimating the amortization for fiscal 2006 and overestimating it for fiscal 2007 by around $150 million, which could significantly affect earnings for both years.
Another possible boost: the renegotiation of Disney's cable deal with Comcast Corp. and Time Warner. And an upside could come if Disney decides to throw in the towel on its ESPN cellular-telephone service, which provides subscribers with scores, news and video highlights
One worry among some investors has been the ABC network. After a recovery driven by hits like "Lost" and "Desperate Housewives," some analysts are concerned there is only one way ratings can go: down. At the very least, higher costs from a slew of pilots and the World Cup are expected to hit fiscal 2006. However, new fall shows like "Ugly Betty" are getting positive early buzz.
At the theme parks, analysts have raised alarm bells as a successful promotion to mark the 50th anniversary of Disneyland draws to a close. A slowdown in consumer confidence is seen as a major risk there. Hong Kong Disney also is at risk of missing its first-year attendance goal of 5.6 million visitors, but the overseas parks are showing signs they could build momentum next year.
William Drewry, an analyst at Credit Suisse, who followed Ms. Styponias with a research note titled "The bears are wrong," says the parks should benefit from a positive shift in pension expense next year. He has the equivalent of a "buy" recommendation on Disney's stock. Credit Suisse has had a business relationship with Disney within the past 12 months.
http://money.aol.com/news/articles/_a/can-this-disney-ride-continue/n20060801095109990002
I thought it was an intresting article, it brings up some good points. I hope that when Iger sees that HKDL might not meet attendance goals, he thinks twice before building another resort location in Shanghi.
