Don't you love findng brand names on sale?
That's what Walt Disney (NYSE:DIS) is today -- one of the most powerful and lucrative corporate brands in the world, trading at a discount to the company's actual value, any way you look at it.
Let's look at the Mouse from a couple of different angles. First, we can compare the company's P/E ratio to those of its big-media peers. Man, Disney almost looks downright dissed:
|
Company |
P/E |
|---|---|
|
CBS (NYSE:CBS) |
15.4 |
|
News Corp (NYSE:NWS-A) (Fox) |
20.5 |
|
Viacom |
18.4 |
|
Time Warner (NYSE:TWX) |
17.1 |
|
General Electric (NYSE:GE) (NBC Universal) |
23.9 |
|
Disney |
14.5 |
From a historical point of view, the story takes a strange turn. When Bob Iger stepped in as CEO to right Disney's sinking ship two years ago, Mr. Market apparently took umbrage to the change in leadership. Iger churned out quarter after quarter of reliable sales growth and widening margins. Yet by historical P/E ratios and price-to-free cash flow, his stock is cheaper today than at any time in the last five years, including the uninspiring end of Michael Eisner's reign.
Restoring Disney to valuations of Christmases not long past, the company should be worth about 21 times trailing earnings, or 26 times free cash flow.
The real deal
But it gets even better. Quick-and-dirty price-to-whatever valuations can be handy starting points, but the real value of a large business lies in its future cash flows. Enter the discounted cash flow calculation.
According to Capital IQ, over the last five years, Disney's free cash flow has grown at a 25% annual clip -- 46% a year since Iger stepped in. But let's use the more conservative growth estimates of your average analyst: 14.3% for the next five years. Step down to the low side of the industry average for another five years, 10% or so, and then grow at an inflation-like 3.5% to infinity and beyond. I'll use an 11% discount rate, and start from $3.9 billion in trailing free cash flow.
Under that model, Disney should be worth almost $110 billion right now. That's $46 billion more than the going market price. Keep in mind that we used some relatively conservative numbers in these calculations, and you'll see why I think the current price is so unfair.
Enough with the boring numbers already!
Disney looks amazing in almost any light. Its mighty brand name gives the company pricing power even in times of recession. The Pixar acquisition brought in some of the best creative minds in the business, and placed them in charge of the animation studio that drives the rest of the business. Six Flags (NYSE:SIX) and Cedar Fair (NYSE:FUN) can't hold a candle to Disney World, and the ABC network rules the TV ratings every week.
And all of this can be had on Wall Street's sales rack. Heck, Disney has even underperformed the S&P 500 this year -- in price movements, but not in financial performance or future prospects. Deals like this can't last. Get in right now, or suffer the consequences.
Don't forget -- this is a competition. If you feel that Disney is the fairest of all the Black Friday stocks, let us know with a simple thumbs-up CAPS grade. It's fast and fun, and you really can't compete with free.
Further Foolishness:
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