The Walt Disney Co (DIS, Financial) experienced a daily loss of -2.91% and a 3-month loss of -6.9%. Despite this, the company reported an Earnings Per Share (EPS) of 1.23. The question that arises is whether the stock is significantly undervalued. This article aims to provide a detailed analysis of The Walt Disney Co (DIS)'s valuation to answer this question. We invite you to read further for an in-depth exploration.
Company Overview
The Walt Disney Co owns the rights to globally recognized characters such as Mickey Mouse and Luke Skywalker. These characters are featured in several Disney theme parks around the world. Disney produces live-action and animated films under studios such as Pixar, Marvel, and Lucasfilm. It also operates media networks including ESPN and several TV production studios. Disney has 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.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. The stock of The Walt Disney Co (DIS, Financial) is estimated to be significantly undervalued based on GuruFocus' valuation method. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance.
At its current price of $82.55 per share, The Walt Disney Co has a market cap of $151 billion and the stock is estimated to be significantly undervalued. Because The Walt Disney Co is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. The Walt Disney Co has a cash-to-debt ratio of 0.24, which is worse than 74.2% of 1004 companies in the Media - Diversified industry. The overall financial strength of The Walt Disney Co is 6 out of 10, which indicates that the financial strength of The Walt Disney Co is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. The Walt Disney Co has been profitable 9 over the past 10 years. 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 67.12% of 1028 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 the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of The Walt Disney Co is 2.7%, which ranks better than 58.26% of 956 companies in the Media - Diversified industry. The 3-year average EBITDA growth rate is -16.9%, which ranks worse than 77.17% of 771 companies in the Media - Diversified industry.
ROIC vs WACC
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 10.29.
Conclusion
In conclusion, the stock of The Walt Disney Co (DIS, Financial) is estimated to be significantly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 77.17% of 771 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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