Weekly Equity Idea Highlight - 2020 01 06
Even after the recent move higher in the stock, market expectations for DIS appear to signal investors misunderstand DIS' return and growth potential going forward. Markets expect UAFRS-based (Uniform) ROA (ROA') to remain level with forecast post-Fox acquisition 2019 levels, even while DIS has seen their ROA' expand every year since 2009.This profitability expansion has been driven by the company's intelligent strategic initiatives to drive growth though their various business lines off of several brand platforms. The company's continued plan is to drive this strategy, not just with the brands that have gotten them here, but also with the new brands they have just recently taken over.
They also have the opportunity to accelerate this, through their new planned streaming platform, which will have one of the most robust platforms of content in the streaming marketplace. These factors are likely to drive ROA' expansion, just when the market is expecting stagnation going forward.
Management alignment and confidence in recent calls point to reasons to believe in further operational improvement. Management is specifically compensated on ROIC, to drive return expansion, and also free cash flow and operating income/EPS metrics that will drive them to grow while expanding profitability. Also, management has shown confidence in recent calls around theme park growth trends, their Marvel content platform, and around their plans for their streaming strategy and business. These markers show the management team executing on operational initiatives that the market is not giving them credit for.
Considering low market expectations relative to DIS' potential performance, management's intelligent strategy and strong execution, business tailwinds, and growing management confidence about their outlook for the business, there appears potential for equity upside going forward.
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.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.