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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


September 13th 2013 Disney
NYSE Symbol: DIS
Industry: Entertainment
Price as of 9/13: $66.69

A 5% pullback in August was pretty much wiped away here in September. So much for September being the weakest month of the year. Syria has been put on the back burner, the tapering has been priced in so the only place left to invest is the US stock market once again. Even though the averages are approaching all-time highs once again, US corporations keep buying back stock and hiking their dividends. Just this week, Philip Morris and Qualcomm announced dividend hikes and new multibillion dollar share buyback plans. This week we'll highlight a Dow component that announced a $6-$8 billion share buyback plan just yesterday. The stock of the week is Disney. If content is king, Disney is the supreme ruler. Disney has benefitted dramatically from the acquisition of ABC Cap Cites which included sports network, ESPN. ESPN along has paid for the acquisition. In the last several years Disney has been gobbling up other content companies including Pixar, Marvel, and now Lucasfilms Star Wars creating a monopoly among fictional and animated characters. The first Star Wars movie will not come out until 2015, but it won't take Disney long to make back their $4 billion investment. And all that cash flow will go to more share buybacks and dividend hikes. Disney has run up dramatically this year along with the broader market, but longer term Disney and Disney's stock are well positioned to keep rewarding their shareholders.

Back in the beginning of August when the flop of the Lone Ranger movie was all over the news, Walt Disney reported better than expected earnings beating estimates by 2 cents to $1.03 a share or $1.85 billion. Revenue rose 4.4% to $11.58 billion. Breaking down the divisions, the Media Networks revenues for the quarter increased 5% to $5.4 billion and segment operating income increased 8% to $2.3 billion. Parks and Resorts revenues for the quarter increased 7% to $3.7 billion and segment operating income increased 9% to $689 million. Studio Entertainment revenues decreased 2% to $1.6 billion and segment operating income decreased $112 million to $201 million, primarily due to a decrease in worldwide theatrical distribution results. Cash provided by operations for the first nine months of fiscal 2013 increased 4% or $286 million to $6.7 billion as compared to the first nine months of fiscal 2012. The increase was primarily due to higher segment operating results and lower tax payments, partially offset by the payment related to the Celador litigation and higher film production spending.

Disney's stock is not as cheap as most value plays. Currently, Disney trades for 16 times earnings and 2.5 times sales. The stock has a modest dividend with just a 1.2% yield, but with a payout ratio of less than 25%, Disney has plenty of room to hike their dividend and should do so over the coming years. Disney was upgraded yesterday by Stifel with a $76 price target. Disney is not cheap in the short run, but neither is the broader market. Longer term not many companies are as well positioned as Disney to boost earnings and cash flow and thereby pushing their stock price much higher.