Despite a daily loss of 2.74% and a 3-month loss of 8.13%, The Walt Disney Co (DIS, Financial) has an Earnings Per Share (EPS) (EPS) of 1.23. The question that arises is whether the stock is significantly undervalued. This analysis will delve into the valuation of the company, providing investors with insightful information to make informed financial decisions.
A Snapshot of The Walt Disney Co
The Walt Disney Co, globally recognized for its iconic characters such as Mickey Mouse and Luke Skywalker, has diversified its business operations over the years. It owns several theme parks worldwide, produces live-action and animated films under studios like Pixar, Marvel, and Lucasfilm, and operates media networks including ESPN and several TV production studios. The company has also shifted into a more streaming-focused firm by acquiring the remainder of Hulu and launching Disney+ and ESPN+. As of September 2022, Disney had over 235 million subscribers across its streaming platforms, a significant increase from under 64 million in December 2019.
Unraveling the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. If a stock's price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, it is deemed undervalued, and its future return will likely be higher.
The Walt Disney Co (DIS, Financial), with its current price of $81.39 per share and a market cap of $148.90 billion, is believed to be significantly undervalued according to the GF Value. As a result, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. The Walt Disney Co has a cash-to-debt ratio of 0.24, which is worse than 74.68% of 1003 companies in the Media - Diversified industry. GuruFocus ranks the overall financial strength of The Walt Disney Co at 6 out of 10, which indicates that the financial strength of The Walt Disney Co is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is usually less risky. A company with high profit margins is generally a safer investment than those with low profit margins. Over the past ten years, The Walt Disney Co has been profitable 9 times. Over the past twelve months, the company had a revenue of $87.80 billion and Earnings Per Share (EPS) of $1.23. Its operating margin is 8.49%, which ranks better than 67.65% of 1020 companies in the Media - Diversified industry. Overall, the profitability of The Walt Disney Co is ranked 7 out of 10, which indicates fair profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. The Walt Disney Co's 3-year average revenue growth rate is better than 58.14% of 958 companies in the Media - Diversified industry. The Walt Disney Co's 3-year average EBITDA growth rate is -16.9%, which ranks worse than 77.34% of 768 companies in the Media - Diversified industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, The Walt Disney Co's return on invested capital is 2.89, and its cost of capital is 10.15.
Conclusion
In summary, the stock of The Walt Disney Co (DIS, Financial) is believed to be significantly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 77.34% of 768 companies in the Media - Diversified industry. To learn more about The Walt Disney Co stock, you can check out its 30-Year Financials here.
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