Walt Disney DIS continues to generate impressive results across its key businesses. As recently as August 2011, the market soured on Disney for a hiccup in earnings and some perceived profitability weakness at the parks business. We maintained our long-term outlook and the shares became a bargain, trading down to the low $30 range. Today, the company is firing on all cylinders. The market is excited about its prospects and the stock is near our $50 fair value estimate, which remains unchanged. We'll patiently wait for a better opportunity to recommend putting new money to work in Disney as we view this as a well-run wide-moat company with solid long-term growth potential of 5%-6% annually. Overall revenue and operating income were up 3% and 13%, respectively, in the fiscal fourth quarter. The cable networks and parks business were the strongest contributors to growth. Cable network sales growth of 6% was achieved despite some headwinds from the Olympics, which took away some viewers and ad dollars, as the company indicated that advertising sales at ESPN were flat. We view this as a short-term blip as NFL and college football games across all networks are generating higher audience ratings every year and we think this trend is likely to continue. On a trailing-12-month basis, cable network operating margins of 41.9% exceed its all-time high-water mark from 2010, even with escalating costs for sports rights. For the entire note, click here.
Michael Corty, CFA