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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


December 3rd 2011 Disney
NYSE Symbol: DIS
Industry: Entertainment
Price as of 12/2: $36.61

What a difference a week makes. We started Monday at 11,200 and finish the week at 12,000 up over 7%. A good year in just one week. 2011 has to go down as one of the most volatile years in history. Investors however don't like the volatility and remain on the sidelines. When investors do put money to work, it's typically in the defensive areas. One of the best performing sectors this year is the boring utility space. Most of the volatility the last several months is due to the European debt crisis. As bad as things seem, most US companies are reporting record earnings and cash flow thanks to strong demand from Asia and other parts of the globe. Hence plenty of S&P 500 companies are dramatically raising their dividends. In the month of November Home Depot hiked their dividend 16%, Union Pacific hiked theirs 26%, Nike up 16%, Whole Foods up 40%, Lincoln National up 60%, and Starbucks up 31%. This week we'll feature another company that hiked their dividend just this week. The stock of the week is Disney. Like most stocks, Disney has been on a wild ride this year. But thanks to a 50% hike in their dividend, investors should start to warm up to the entertainment giant. The recent dividend hikes have served most stocks well in this volatile environment.

Back at the beginning of November, the Burbank, Calif.-based entertainment conglomerate earned $1.09 billion, or 58 cents a share easily beating estimates on sales of $10.4 billion in the fiscal fourth quarter, compared with a profit of $835 million, or 45 cents a share, in the year-ago period, on revenue of $9.74 billion. The media networks revenue rose 9% to $4.79 billion while Parks and Resorts revenue rose 11% to $3.12 billion thanks in part to the opening of Hong Kong Disneyland Resort. The better than expected parks department sales offset higher costs for the new Aulani hotel and vacation club resort in Hawaii, which opened during the quarter. The broadcasting segment saw income growth of 37%. Ad sales at the ABC television network remain strong with rates up about 20% in advance of the fall season. ESPN, ad sales remain solid even with the NBA lockout as more ad sales have shifted to college basketball. Even the advent of the DVR has not dented the advertising space. As it turned out, people with digital video recorders tend to watch more TV in general which allows the networks to charge higher ad rates. At Disney's film and TV studios, earnings rose 13% on improved theatrical box-office results, led by "The Lion King 3D" and "Cars 2." Home entertainment results declined on a decrease in overall U.S. sales and fewer catalog sales overseas.

Even with the recent rebound in Disney's stock, the valuation still looks compelling. Currently the stock trades for 12.5 times 2012 earnings, 11 times 2013 earnings, and 1.5 times sales. Disney also trades for 1.74 times book value of $20.68 a share. The dividend hike jumps the yield up to 1.6%, but since it's a one time dividend investors get the whole 1.6% at once. Investors looking to get the dividend need to buy the stock before December 14th. One analyst updated the stock following the dividend hike with a $45 price target. That would translate into a 25% return from current level. Not a bad risk reward for a blue chip Dow component.