Tough Quarter At Disney

February 4, 2009 at 1:19 pm  ·  Category: Macro Economics, Stocks

It’s a really disappointing quarter.  The surprise is that the bigger disappointment came on the media networks side instead of the theme parks.  They took a real hit at ESPN and in the broadcast business, which reflects the tough advertising market.

David Bank  (subscription required), analyst at RBC Capital Markets

The results were worse than expected overall.  Going forward, this company is likely facing at least a couple more quarters of very difficult operating conditions.

I’m particularly surprised by the extent of the weakness in the media networks business.  ESPN’s poor performance was unexpected, while the theme parks did a little better than what I was looking for.

Michael Kupinski  (subscription required), analyst at Noble Financial Group

Tough quarter at Disney (DIS Earnings Release ):

  • Overall revenues down 8% and net income off 32%. 
  • Theme Park operating income was off 24% on a 5% decline in attendance at Disney World and Disney Land. 
  • Occupancy rates at the hotels in Orlando and Anaheim was off mid single digits to 85%.
  • Lower advertising revenues at ESPN compared to the year ago period.
  • Lower advertising revenues at ABC compared to the year ago period.

This is a tough time for the kinds of discretionary businesses that Disney operates.   They still have terrific assets but as Michael Kupinsky said this is going to be a tough period for them.

However, a lot of this seems to be in the stock already.  At $19, it’s trading at levels it hasn’t seen since 2003.  Amazingly, the stock is trading for right around book value (Market Cap: $35.6 billion, Book Value: $32.6 billion).   Usually, Disney trades at a pretty good premium to its book value due to the premium value of its assets.

It’s also trading for around 9 times trailing 4 quarter earnings.  So even if earnings drop 20% going forward, that’s an 11 forward multiple which is cheap.

I don’t want to own Disney here because I don’t see much upside until the operating environmnt improves.  But there’s probably not much downside at these levels either.

Disclosure: Top Gun has no position in Disney (DIS) stock.

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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