Disney wants higher valuation, Wall St hesitates
Written on June 23, 2008
Walt Disney Co (DIS.N: Quote, Profile, Research, Stock Buzz) is waging a campaign to convince investors that its product range and brand make it more valuable than media peers and more like a consumer goods company — but so far that has proved a hard sell on Wall Street.
On calls with analysts and at investor conferences since November, Chief Executive Bob Iger and Chief Financial Officer Tom Staggs have argued that the second-largest U.S. entertainment company should be viewed as a stable global brand rather than a cyclical, hit-driven media business.
“I think we should be considered differently from our peers … hopefully that translates into value as well,” Iger said on Tuesday at the opening of the Toy Story Mania ride at Disney’s California Adventure theme park in Anaheim, California.
Disney executives have been touting “the Disney Difference” — the company’s growing stable of characters, its ability to apply them to all its businesses and its growing global reach — as elements that set the company apart from media rivals.
But some analysts, including David Bank of RBC Capital Markets, say as long as Disney derives so much of its revenue from movies, TV and theme parks — 93 percent in 2007 — it will be valued as a media brand, especially in a down economy.
“There is no way to get around the reality that Disney is a hit-driven business,” Bank said, though he accepted that “a leverable brand does tend to get a premium” valuation.
At a multiple of 13.4 times estimated 2009 earnings, Disney shares trade above big names like Viacom Inc (VIAb.N: Quote, Profile, Research, Stock Buzz), at 10.6, and Time Warner Inc (TWX.N: Quote, Profile, Research, Stock Buzz), at 12.2 faxless payday loans. But its price-earnings ratio lags consumer companies with similar brand power, including Coca-Cola Co (KO.N: Quote, Profile, Research, Stock Buzz) at 15.7 times 2009 earnings, Nike Inc (NKE.N: Quote, Profile, Research, Stock Buzz) at 17.1, and Procter & Gamble Co (PG.N: Quote, Profile, Research, Stock Buzz) at 16.7.
Disney’s share price, having climbed out of a trough around $23 shortly after Iger took over, has languished in the mid-$30 range for more than a year despite three years of double-digit earnings growth and $16 billion in share buybacks. Yet analysts who follow Disney have a median price target of $40.
Filed in: online.