History, it is said, repeats itself. Few but are reminded almost every day of something that has gone before.  Henry Sedley, 1865

On October 30, 2012, the Walt Disney Company (NYSE: DIS) announced the acquisition of Lucasfilm, the iconic American film and television production company best known for its Star Wars and Indiana Jones franchises. Lucasfilm was 100% owned by Chairman and Founder, George Lucas, who will receive total consideration of $4.05 billion.

Disney has a rich history of making smart acquisitions and wisely integrating them into their ever-expanding ecosystem. Under the stewardship of current Chairman and Chief Executive Bob Iger, the Company has made a series of media company purchases over the past decade. On May 5, 2006, Disney acquired California-based Pixar for $7.4 billion in an all-stock deal, causing Pixar majority shareholder Steve Jobs to become Disney's largest shareholder owning 7% of the Company. Pixar has produced thirteen feature films, three of which are among the highest grossing films of all time, including Finding Nemo (2003), Up (2009), and Toy Story 3 (2010).

On August 31, 2009, Disney made a second integrative acquisition in the form of Marvel Entertainment for $4 billion. Marvel owns rights to the popular Spider Man and X-Men series. At the time, CEO Bob Iger stated, "This is perfect from a strategic perspective. This treasure trove of over 5,000 characters offers Disney the ability to do what we do best."

Based on the above analysis, it should have been no surprise to shareholders and market observers that Walt Disney would choose to purchase Lucasfilm.

Shares of the Walt Disney Company have outperformed the S&P 500 index over the past 5 years, as well as competitors Viacom (NASDAQ: VIA) and DreamWorks Entertainment (NASDAQ: DWA).

  The Walt Disney Co. CBS Corporation DreamWorks Animation News Corp Viacom Industry Average
Price/Earnings (TTM) 15.88x 15.52x 20.63x 24.41x 11.81x 19.96x
Price/Sales (TTM) 2.08x 1.57x 2.05x 1.72x 1.87x 2.13x
PEG Ratio (TTM) 1.24x 1.01x 1.64x 1.59x 0.81x 1.73x

Trailing twelve month. Industry averages represent Broadcasting & Cable TV

Here are six additional reasons why Disney should continue to outperform:

  • At its current share price of $50, Disney has an attractive valuation with a trailing twelve month price-to-earnings ratio of 16x and forward looking price/earnings to growth rate of 1.24 times. Earnings should be growing at 10 to 15 percent going forward.
  • Disney is committed to investing in its theme parks both domestically and abroad. The Company finished its multi-year expansion of Fantasyland in Walt Disney Word (Orlando, FL) this year, now open to the public. An expansion of Disneyland in Hong Kong also took place during 2012. Management remains committed to opening a brand new park in Shanghai, China by 2015.
  • On November 28, Disney's board of directors increased the Company's annual dividend by 25% to 75 cents per share. This is an increase of 15 cents from the 60 cents annual cash dividend distributed during 2011. The dividend is payable on December 28 to shareholders of record at the close of business on December 10.
  • Disney recently won the weekend box office fight on November 5 when it's Wreck-it Ralph animated film took in nearly $50 million, beating out Viacom's (NASDAQ: VIAB) Flight motion picture featuring Denzel Washington, which earned approximately $25 million during the same opening weekend.
  • Lincoln, the recent American historical film covering President Lincoln's life, reached an all-time Thanksgiving record high of $290 million in sales from Wednesday through Sunday. DreamWorks Entertainment, the film producer, is the main beneficiary, however Disney is responsible for distribution.
  • Citigroup recently upgraded Disney from Neutral to Buy with a $54 price target, specifically citing the recent acquisition of Lucasfilm. Barron's also wrote a positive editorial on Disney in November, stating shares could hit $60 within 18-24 months. I think these price targets are conservative based on projected EPS growth rates.

The Walt Disney Company will be presenting at the upcoming 40th Annual UBS Global Media and Communications Conference on Wednesday, December 5 at approximately 12:15 pm EST.

If you are interested in a second example of a Fortune 500 Company with a rich history of acquisitions, consider reading my previous post on Starbucks recent acquisition of Teavana, and how it should be accretive to long-term growth for shareholders.

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