DIS - Embedded Expectations Analysis - 2019 08 14
The Walt Disney Company (DIS:USA) currently trades above historical averages relative to UAFRS-based (Uniform) Earnings, with a 24.3x Uniform P/E. However, even at these levels, the market has bearish expectations for the firm, and while management's concerns about the Disney+ launch, 21st Century Fox integration, and international expansion suggest the potential for near-term headwinds, the firm's leadership position in its space suggest longer-term upside remains warranted.Specifically, management is confident they need to augment Disney+ with local programming in international markets and that ESPN programming expenses will increase due to contractual rate hikes in broadcasting. Furthermore, they may be downplaying concerns about trade issues between Hong Kong and Shanghai, and they may be concerned about their ability to integrate Fox's assets to the direct-to-consumer space. Moreover, they may be concerned about the sustainability of domestic resort reservations growth, and they may lack confidence in their ability to quickly achieve scale for the Disney+ introduction. Likewise, they may lack confidence in their ability to launch Disney+ internationally within two years, and they may be concerned about continued erosion in broadcasting ad revenue. Finally, management may lack confidence in their ability to maintain their current credit rating.
That said, even with near-term headwinds suggested by management's pessimism, long-term outperformance remains warranted at current valuations as DIS executes on its strategy.
Walt Disney is an entertainment company. The company's segments are: Media Networks, which includes domestic cable networks, broadcast television network and domestic television stations, and television production and distribution; Parks, Experiences and Products, which includes theme parks and resorts, and consumer products operations; Studio Entertainment, which includes motion picture production and distribution, music production and distribution, and post-production services; and Direct-to-Consumer and International, which includes international television networks and channels, direct-to-consumer streaming services, and other digital content distribution platforms and services.
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