Should You Buy the Dow — Walt Disney

Today, well look at Walt Disney Co. (NYSE: DIS ). You know its a diversified
entertaiment conglomerate, but how diversified is it? The companys Media
Networks segment includes TV production and networks (including ABC and ESPN);
46 owned radio stations; and Disney-branded Internet Web site businesses, as
well as Club Penguin. The Parks and Resorts segment owns and operates well, you
know. It also includes Disney Vacation Club, Disney Cruise Line and ESPN Zone
facilities. The Studio Entertainment makes movies, music and live stage plays.
The Consumer Products segment licenses Disney characters, and visual and
literary properties to manufacturers, retailers, show promoters and publishers;
and publishes books and magazines. The key driving factor regarding Disney is
the economy. However, because the company is so diversified, certain segments do
worse than others in hard times, and others are able to hold their own. On the
movie side, the purchases of Pixar and Marvel Studios really drive company
revenues. These two premium studios execute flawlessly none of their films have
ever lost money and, in fact, recently have been outrageously profitable. Stock
analysts looking out five years on Disney see annualized earnings growth at 15%.
At a stock price of $32, on FY 2011 earnings of $2.49, the stock presently
trades at a P/E of 13. Time Warner (NYSE: TWX ) and Viacom (NYSE: VIA ) are the
closest competitors, with P/Es of 13 and 25, respectively, so Disney is on the
low end of the valuation scale. Disneys financials are stellar. The company
carries $3.5 billion in cash and $9.2 billion in debt. Trailing 12-month cash
flow was $3.7 billion. The company also had 4.5 times the amount of free cash
flow necessary to pay its 1.2% dividend. Disney makes a lot of money and
reinvests that cash right back into its gigantic business (movies cost a lot of
money). No insider purchases have been made in a long time, which is
discouraging but not a deal-breaker. Conclusion If we put an 15 P/E on Disney,
then, on projected 2015 earnings of $4.43 per share, and factor in 1.2%
compounded dividend yield reinvested, we get a price target of $72. Thats an
amazing total return of 120% from here, suggesting Disney falls into the
category of both a value and a growth stock. Disney is a big buy to me. I
believe Disney is a buy for regular accounts. I believe Disney is a buy for
retirement accounts. Lawrence Meyers does not own shares of any company
mentioned.