The Walt Disney Company (NYSE:DIS) can do no wrong lately as its recent movie releases have been tremendously successful at the box office. Its most recent movie utilizing its Marvel acquisition, Captain America: The Winter Soldier, has grossed over $700 million worldwide . Its original creation Frozen has surpassed everybody's expectations and grossed almost twice as much as Captain America with $1.2 billion in sales worldwide .

Disney's competitor Twenty-First Century Fox (NASDAQ:FOXA) has found its own success with the "Planet of the Apes" and "Rio" films as well as the X-Men films. The latest X-Men movie, X-Men: Days of Future Past, has grossed over $300 million in sales worldwide in just its first week of release . Disney's other competitor, Time Warner (NYSE:TWX), has also found recent success with the recent releases of the new Godzilla film and The Lego Movie. Godzilla has grossed $322 million in sales worldwide going on two weeks of release , and The Lego Movie grossed $461 million worldwide. 

Disney, Twenty-First Century Fox, and Time Warner alike are finding success within the movie space with hundred-million-dollar movies and billion-dollar movies in some cases. However, which company makes the better investment at this point?

All three companies carry similar valuations aside from cash flow metrics



Forward P/E

5-yr. PEG


The Walt Disney Company





Twenty-First Century Fox





Time Warner





Data Source: Morningstar

On a trailing earnings basis looking back over the past year, Time Warner offers the most value with a P/E of 16. Walt Disney and Twenty-First Century are not wildly overvalued, however, with both stocks trading at P/E's of 21. The S&P 500 currently trades at a P/E of 18, so investors have to believe that Walt Disney and Fox have bright futures ahead of them given their P/E multiples. With both companies' successes lately at the box office, it is not hard to justify paying a premium to the market for these companies.

Time Warner also offers the most value on a forward earnings basis with a forward P/E of 15. Walt Disney and Fox are not far behind though with P/E's of 18 and 19, respectively. Looking forward five years, Fox seems to offer the most value with a PEG of 0.9. Time Warner has a PEG just over 1 at 1.1 so it is by no means overvalued. Walt Disney has the highest PEG out of the three at 1.4, but its PEG is also not an immediate call for concern, especially given Disney's recent success and stable of movies in the pipeline.

On a cash flow basis, Fox is substantially valued with a P/CF of 33, more than twice the P/CF multiples of Disney and Time Warner. The S&P 500 trades at a P/CF of 11 so Fox's P/CF is also three times that of the market at 33. Disney's P/CF of 15 and Time Warner's P/CF of 14 are not substantially more than that of the market. Buying Fox's stock on this basis, however, an investor would have to believe that Fox will grow its cash flow at a higher clip than Disney or Time Warner.

Disney is not overvalued given its future
Although Disney does not have the lowest valuation considering its current earnings and cash flow, the company's future is promising with its slew of Marvel adaptations in movies, shows, and theme park attractions. It has scheduled Guardians of The Galaxy for release this year, and another Avengers film is set for release in 2015. Also, Disney is now the home of Lucasfilm and a host of Star Wars movies are slated for release over the next couple of years . All of the recent Star Wars films have grossed over or close to $1 billion in sales. Moreover, Disney is the home of ESPN, which remains extremely popular among sports fans.

Given Disney's success with capitalizing on its Marvel acquisition, the Lucasfilm purchase should also pay dividends, both figuratively and financially. With such a collection of assets to capitalize on, paying a slight premium for Disney's stock is well worth it. Therefore, Disney is not grossly overvalued given the company's bright future and current as well as past fortune.

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Andrew Sebastian has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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