Walt Disney Co. The Economy

Walt Disney Co.

The economy is emerging from a recession. The stock market has improved since February 2009. Interest rates are still being held low with 0.25% target for the Fed funds rate (Federal Reserve Bank of New York, 2010) and the GDP has improved over the past couple of quarters (BEA, 2010). The Federal Reserve is not concerned about inflation (Hernandez, 2010) with the CPI increasing at just 0.2% per month. There are no major issues facing Disney at present, save the potential revaluation of the Chinese yuan, which could be good for business at the new Shanghai Disneyland.

Disney is a diversified entertainment company in media (TV, movies) and theme parks in particular (MSN Moneycentral, 2010). There are seasonal elements to the industry but it is not cyclical. Disney is a market leader, with $36 billion in revenue. There are opportunities for geographic expansion (especially Asia), for M&a activity and for cost reduction. There are threats from competitors, the prevailing economic climate and from cost escalation. There is the also the threat of intellectual property theft, particularly as the company moves more into emerging markets where laws on such matters are weak.

Section III. Disney was founded in 1923 and is headquartered in Burbank, CA. It markets media (TV, movies, music) and theme parks. It is listed on the NYSE (DIS) and is large cap mature stock. The industry is entertainment-diversified. Three competitors are Time Warner, CBS and News Corp. Disney is by far the largest of these four with a market cap of $72.19 billion, revenues of $36.29 billion and assets of $69.3 billion. The company's last earnings were $3.3 billion. The EPS is $1.76; the P/E ratio is 20.40 and the dividend yield is 0.98%. The company has a strong balance sheet -- D/E ratio of 0.38, current ratio of 1.1. Gross margin is 16.2%, turnover figures good, ROE of 9.6% and ROA is 5.4%, ROI is 6.7%.

Section IV. Disney is positioned to continue as a profitable entity for the foreseeable future. Its businesses are strong, financials good and the company has a stable model. Disney could be involved in M&a activity, but as the largest company in the industry and having financial strength there is low likelihood that Disney will be purchased.

Memo. Founded in 1923, the Walt Disney Company is a diversified entertainment company. Its businesses are mature, enjoying mainly organic growth. Revenues are stable, even through the economic downturn, although profits have slumped slightly. Disney is the industry leader and is the largest firm in the industry by all measures. It competes mainly in theme parks, television, movies and music.

Disney has strong financial ratios, marked by a low debt level, good liquidity and healthy margins. The company's returns are better than the industry average. Because of its solid financial position, Disney has few major threats -- it is differentiated even from its major competitors. There remain good growth opportunities for Disney, in particular with geographic expansion. The Asia market remains a source of growth opportunity.

The economic environment is improving. The economy is growing but without major inflationary pressure. As a result, Disney should be poised to experience solid growth in the coming few years. The company's size and strength all but preclude it from being a takeover target, but Disney could do some acquiring of its own.