Foolish Forecast: Disney Is One Sweet Belle

All-around entertainment giant Walt Disney (NYSE: DIS  ) reports second-quarter earnings on Tuesday night. Are we in for a beauty of a quarter, or more of a beast? Let's take to the dance floor and see for ourselves.

What Fools say:
Here's how Disney's CAPS rating stacks up against some of its peers and competitors:

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating

Walt Disney

$62.6

16.0

****

News Corp. (NYSE:NWS)

$57.9

18.4

****

Time Warner (NYSE:TWX)

$57.4

14.9

***

Viacom (NYSE:VIA.B)

$24.9

13.4

****

CBS (NYSE:CBS)

$16.3

13.2

**

Data taken from Motley Fool CAPS and Yahoo! Finance on 05/05/2008.

Although Disney doesn't have the lowest P/E rating in its peer group, some of our Motley Fool CAPS players still think that the mouse-eared stock is cheap. "They're not recession proof," says bullish All-Star player AnomaLee, "but this holding company should be as recession resistant as it gets. ESPN, ABC, Hannah Montanah, Walt Disney movies, etc..."

The bears don't see any huge Disney movies in the near future, and a slowing economy might hurt the domestic desire to visit theme parks more than it would encourage visits from abroad.

What management does:
The initial Iger Effect is trailing off, as revenue growth rates have slowed down from the hasty improvements in 2006 and early 2007. But margins are still trending up; the negative blip in last quarter's net income figure comes from a $1.1 billion in investment gains falling off the 12-month wagon.

Margins

9/2006

12/2006

3/2007

6/2007

9/2007

12/2007

Operating

15.9%

17.0%

18.1%

18.6%

19.1%

19.6%

Net

10.0%

12.6%

12.9%

12.8%

13.2%

11.6%

FCF/Revenue

14.0%

13.4%

14.9%

13.3%

10.9%

11.0%

Y-O-Y Growth

9/2006

12/2006

3/2007

6/2007

9/2007

12/2007

Revenue

7.6%

7.3%

9.8%

9.0%

5.2%

5.5%

Operating Income

36.2%

41.3%

52.2%

43.3%

26.6%

21.7%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Analysts remain divided about whether Disney will take a hit on Tuesday from economic conditions. However this Fool truly believes that Disney's diversified businesses will prevail. Bob Iger has yet to disappoint Wall Street analysts and investors with a less-than-stellar earnings report, and the streak of matching or beating earning estimates stretches way back into the Eisner years. Plus the company didn't fail to delight in the last report either, despite growing recession fears.

I'm also not convinced that the theatrical release schedule is all that weak: This year, we're still waiting for the traditional Pixar blockbuster and sequels in the proven Narnia and High School Musical franchises. Looking further ahead, we're only two years away from a fully Pixar-powered Toy Story 3, as well as a return to traditional fairy tales like Rapunzel and The Princess and the Frog.

In short, I'm a happy Disney shareholder. I think we have seen only the beginnings of the benefits of installing Iger at the top and putting former Pixar brass in charge of the vital animation studios. Start with great movies, and the rest of the company is built on top of them.

Time Warner, Marvel Entertainment, and Walt Disney are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days. Or just sign up for a free CAPS account to find the identity of your fellow Fool who was quoted above. The investor might have more to tell you!

Fool contributorAnders Bylund owns shares in Disney and Marvel, but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.


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