February 9, 2014 Company Report The Walt Disney Company (DIS) ANALYSIS Company Data Disney reported strong FQ1 op. EPS, well ahead of expectations coming in at $1.04 vs. consensus of $0.92. The company saw double digit profit growth in all of its major segments, which coupled with an accelerated buyback led to the 31% increase in EPS. The outlook remains positive with particular strength expected at both the Studio and Cable Networks in the March quarter, as well as at the Parks with bookings pacing up 7%. We are raising our F2014 EPS estimate to $4.04 from $3.98 reflecting the FQ1 beat partially offset by a more conservative stance on programming expense at the Cable Networks later in the year. Disney continues to be a top pick in our Media universe and these strong results reaffirm our positive outlook for long-term double digit EPS growth driven by superior media assets, strong global brands and stellar profit trends at the Parks. Overweight Price: $71.05 Price Target $85.00 Investment Thesis Remain Overweight given a favorable earnings and FCF outlook with solid growth expected at the Media Networks, further profit expansion at the Parks, and accelerated cash returns to shareholders. We also favor the company's unique brands and assets with high barriers to entry that add confidence in the longer-term earnings growth outlook. We find valuation attractive at 17.8 x our F2014E EPS, which is still at the lower end of its historical premium to diversified media peers. Valuation Our year-end 2014 price target is $85 reflecting a roughly constant forward multiple of -18.5x applied to our F2015 EPS estimate of $4.63. This valuation is in line with Disney's historical premium to its peers, which we see warranted given Disney's earnings and FCF growth outlook, long-term visibility, and brand portfolio is stronger than any time in the last 10 years, in our view. Risks to Rating and Price Target Weaker-than-expected advertising revenue, particularly at ABC or ESPN. Weaker-than-expected Parks attendance and Resorts occupancy. * Studio business tends to be volatile and has a close tie to the Consumer, ated cash returns company's unique brands and assets with high barriers to entry that add confidence in the longer-term earnings growth outlook. We find valuation attractive at 17.8x our F2014E EPS, which is still at the lower end of its historical premium to diversified media peers. Valuation Our year-end 2014 price target is $85 reflecting a roughly constant forward multiple of -18.5x applied to our P2015 EPS estimate of $4.63. This valuation is in line with Disney's historical premium to its peers, which we see warranted given Disney's earnings and FCF growth outlook, long-term visibility, and brand portfolio is stronger than any time in the last 10 years, in dur view. Risks to Rating and Price Target * Weaker-than-expected advertising revenue, particularly at ABC or ESPN. * Weaker-than-expected Parks attendance and Resorts occupancy. Studio business tends to be volatile and has a close tie to the Consumer. a. Required What market-based valuation multiple does this analyst reference with regard to Disney? b. What is this analyst's price target for Disney? If Disney achieves that target in the next twelve months, what would be an investor's return? Explain. Describe how this analyst justifies the price target. d. Comment on the analysis used in this excerpt. Why is this a potentially useful way to value Disney? C. February 9, 2014 Company Report The Walt Disney Company (DIS) ANALYSIS Company Data Disney reported strong FQ1 op. EPS, well ahead of expectations coming in at $1.04 vs. consensus of $0.92. The company saw double digit profit growth in all of its major segments, which coupled with an accelerated buyback led to the 31% increase in EPS. The outlook remains positive with particular strength expected at both the Studio and Cable Networks in the March quarter, as well as at the Parks with bookings pacing up 7%. We are raising our F2014 EPS estimate to $4.04 from $3.98 reflecting the FQ1 beat partially offset by a more conservative stance on programming expense at the Cable Networks later in the year. Disney continues to be a top pick in our Media universe and these strong results reaffirm our positive outlook for long-term double digit EPS growth driven by superior media assets, strong global brands and stellar profit trends at the Parks. Overweight Price: $71.05 Price Target $85.00 Investment Thesis Remain Overweight given a favorable earnings and FCF outlook with solid growth expected at the Media Networks, further profit expansion at the Parks, and accelerated cash returns to shareholders. We also favor the company's unique brands and assets with high barriers to entry that add confidence in the longer-term earnings growth outlook. We find valuation attractive at 17.8 x our F2014E EPS, which is still at the lower end of its historical premium to diversified media peers. Valuation Our year-end 2014 price target is $85 reflecting a roughly constant forward multiple of -18.5x applied to our F2015 EPS estimate of $4.63. This valuation is in line with Disney's historical premium to its peers, which we see warranted given Disney's earnings and FCF growth outlook, long-term visibility, and brand portfolio is stronger than any time in the last 10 years, in our view. Risks to Rating and Price Target Weaker-than-expected advertising revenue, particularly at ABC or ESPN. Weaker-than-expected Parks attendance and Resorts occupancy. * Studio business tends to be volatile and has a close tie to the Consumer, ated cash returns company's unique brands and assets with high barriers to entry that add confidence in the longer-term earnings growth outlook. We find valuation attractive at 17.8x our F2014E EPS, which is still at the lower end of its historical premium to diversified media peers. Valuation Our year-end 2014 price target is $85 reflecting a roughly constant forward multiple of -18.5x applied to our P2015 EPS estimate of $4.63. This valuation is in line with Disney's historical premium to its peers, which we see warranted given Disney's earnings and FCF growth outlook, long-term visibility, and brand portfolio is stronger than any time in the last 10 years, in dur view. Risks to Rating and Price Target * Weaker-than-expected advertising revenue, particularly at ABC or ESPN. * Weaker-than-expected Parks attendance and Resorts occupancy. Studio business tends to be volatile and has a close tie to the Consumer. a. Required What market-based valuation multiple does this analyst reference with regard to Disney? b. What is this analyst's price target for Disney? If Disney achieves that target in the next twelve months, what would be an investor's return? Explain. Describe how this analyst justifies the price target. d. Comment on the analysis used in this excerpt. Why is this a potentially useful way to value Disney? C
