Sun and Darkness

Disney – A National Treasure

It would have been great if CEO Bob Iger had opened Disney’s quarterly conference call with “Recession, we don’t see no stinkin recession.”

Unfortunately, earnings calls are dominated by Wall Street speak so we don’t get anything nearly as bold or colorful. But the folks at Disney deserve to puff out their chests and do a little bragging, as the company turned in another magical quarter at a time when most media companies are hurting.

Most surprising to analysts was the strength of Disney’s Parks unit, which posted revenue of $2.73 billion and income of $339 million – well ahead of the consensus estimates of $2.62 billion and $306 million. Traditionally, there has been a relatively strong correlation between consumer confidence and theme park attendance. Considering that the consumer confidence index has plunged by nearly 30 points over the past nine months to its lowest level in over a decade, investors were bracing for a material drop in park revenues.

Cisco earnings

It didn’t happen. An earlier than normal Easter holiday, strength from overseas and the weak dollar (which attracts foreign travelers to US theme parks) combined to provide the company with its remarkable results.

Another area exhibiting surprising strength was the company’s Studio, or movie, unit. National Treasure 2 contributed greatly to the bullish surprise, as did DVD sales of films such as The Enchanted and Game Plan. The next couple quarters might be difficult on a comparison basis given that Disney sets sail without another installment of the hugely successful Pirates of the Caribbean series, but never underestimate Iger or the house the mouse built. A second Narnia movie, combined with the next Disney-Pixar release, Wall-E, could easily result in another round of positive earnings surprises later this year.

Disney is also doing an exceptional job of monetizing its brandable assets such as High School Musical, Hannah Montana and now the Jonas Brothers. Earlier today the company announced that it will be releasing a new Jonas Brothers movie. Toss in the usual strength of its ESPN brand and you can see why the Broadcasting unit was able to withstand the writers strike and relatively lackluster ratings at ABC to post decent returns.

If Disney is truly recession proof, as these numbers suggest is the case, then the stock is even more attractive than the Vanity Fair pictures of the young superstar Miley Cyrus, aka Hannah Montana download film.

At less than 15 times estimated current fiscal year earnings of $2.32, Disney is trading at its cheapest multiple in the last decade. Don’t know about you but I saw nothing in the quarterly report to suggest this media giant should be trading at a discount to historic norms. Recession be darned (this is a blog about Disney after all), the strength of Disney’s brand, its stellar financials and its brilliant management team suggest that the stock should at least mirror the multiple of the S&P 500. In fact, over the past decade the company has traded at a premium to the S&P 500 of about 20% on average.

Nevertheless, simply par with the benchmark index would result in a move up to the 44 area, or 31% above Tuesday’s close — and that’s the kind of treasure we can all relate to.

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