Evidently, financial turmoil is not reason enough to miss the release of "High School Musical 3" or to pass on a live Jonas Brothers concert. In good times and in bad, Walt Disney (NYSE:DIS) has managed to keep families entertained while keeping an eye focused on revenue and global expansion. Investors thinking about making an investment in the Magic Kingdom should consider the following.
For the first nine months of the year Disney was able to increase revenue 7% to $28.4 billion over the same period a year ago. Operating income was down about 3% from the prior year to $6.015 billion due to higher operating expenses. Disney stock has proven to be equally resilient. Although Disney stock is down about 19% in October, the stock is down roughly 22.4% for the year while the SPDRS S&P 500 Index EFT (AMEX:SPY) is down approximately 35.62%.
Media Networks and its Parks and Resorts segments led the growth in Disney's revenue while its Studio Entertainment segment lagged. Media Networks revenue grew about 8% to $11.9 billion while Park and Resorts revenue grew roughly 9% to $8.5 billion. Growth in satellite and cable providers drives subscriber growth for Disney's ESPN network. In both domestic and international Disney theme parks higher revenues were driven by an increase in attendance and higher average daily hotel rates.
Low Volatility Measurement
Disney has a beta of 0.66 suggesting that the stock is less volatile than a broad index like the S&P 500. Having a beta below "1" suggest that Disney stock will not fall or rise as much as the index. However, a look at previous history reveals that Disney stock has appreciated 7.79% while the SPY ETF has returned -6.25% from October 2005 to October 2008. (For additional reading about Beta check out Beta: Know The Risk.)
Value investors will note Disney's PEG ratio of 0.91, suggesting that the stock is undervalued based on expected earnings growth over the next five years. The complimentary low P/S ratio of 1.24 suggests investors are paying $1.24 for each dollar of revenue Disney generates. Finally the price/book ratio of 1.41 suggests value by indicating Disney's current stock price is only a few points above the breakup value of the companies assets. (For added insight, check out Value By The Book.)
Other diversified entertainment companies with similar valuation ratios include Time Warner (NYSE:TWX) and News Corp. (NYSE:NWS).
There are no guarantees in today's market so investors are better of paying attention to diversified companies like Disney that are capable of drawing revenue from multiple avenues and international locations. Disney will be reporting fourth quarter earnings on November 6.