Disney (NYSE:DIS) fans know they have to pay a premium.

  • If they want to sail on the Disney Wonder or Disney Magic, they will pay far more than passengers on market leader Carnival (NYSE:CCL).
  • A day at the theme park capped with an overnight stay at a Disney World or Disneyland resort will cost you several times over a thriftier trip to a regional amusement park.
  • If you want a Jonas Brothers or Mickey Mouse T-shirt, it's going to cost you more than most boy band or cartoon character merchandise.
  • When Disney launched its D23 quarterly magazine and online club earlier this month, it priced it at a steep $75.

In short, Disney buffs expect to pay more for the family entertainment giant. Unfortunately for Disney shareholders, Goldman Sachs analyst Mark Wienkes doesn't feel that the stock deserves a similar markup.

Wienkes downgraded the stock yesterday -- from "buy" to "neutral" -- and slashed his six-month price target on the stock from $26 to $20 per share. He feels that Disney is selling at roughly a 25% premium to its battered media peers, and he sees that gap narrowing.

Yes, it has been a hard time for the media industry. Time Warner (NYSE:TWX), CBS (NYSE:CBS), and News Corp. (NASDAQ:NWS) are all trading in the single digits. They were all in double digits a year ago. Slowdowns in television advertising and DVD sales have stung, though the sector as a whole is trading at ridiculous valuations if you look out to 2010.


2009 EPS

2010 EPS

2010 P/E

Time Warner












Viacom (NYSE:VIA)




Source: Yahoo! Finance.
EPS = earnings per share; P/E = (estimated) price to earnings ratio.

Is Disney trading at a richer multiple than most of its peers? Yes. Is it expensive, trading at less than 10 times next year's projected profitability? Not exactly.

Disney needs the economy to recover. That is inescapable. It's no coincidence that the company is coming off back-to-back quarters of missing Wall Street estimates after consistently blowing away analysts after CEO Bob Iger originally took over. Disney thrives when consumers have the flexibility to pay a premium.  

However, I wouldn't be so quick to dismiss Disney as premium-worthy just because it's in a market lull. The company has a portfolio loaded with cable properties like ESPN and Disney Channel that aren't as susceptible to advertiser slowdowns as they are to cable subscription defections. There may be cracks forming, but we're not there yet.

In the meantime, investors know that when the economy does roar back, Disney will have the country's most popular theme parks, casino-free cruises, and probably the next Miley Cyrus or two ready to burst onto the stage.

I think all of the media companies are being unfairly priced by Mr. Market these days, but I have every reason to believe that Disney has the brand, history, and arsenal to earn its market premium.

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Longtime Fool contributor Rick Munarriz can usually be found at Walt Disney World. Not today, though. He does own shares in Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.