Valuation Project
Hillary Fundin, Laura Meadows, Alyssa Musket and Maria Troya
TABLE OF CONTENTS
1. Executive Summary…………………………………………………………………..…3
2. Introduction to The Walt Disney Company……………………………………..…….4
2.1
Overview
2.2
History
2.3
Share Price Performance
2.4
Products and Services
2.5
Corporate Strategy and Objectives
2.6
Sources of Competitive Advantage
3. Analysis of Risk………………………………………………………………………..…7
3.1
Overview
3.2
Sources of Firm Risk
3.3
Sources of Industry Risk
3.4
Sources of Market Risk
3.5
Calculation of Firm Risk (Beta)
4. Financial Analysis………………………………………………………….……………9
4.1
Overview
4.2
DuPont Analysis
4.2.1 Net Income/Sales
4.2.2 Sales/Total Assets
4.2.3 Total Assets/Common Equity
4.3
Trend/Historical and Benchmark
5. Valuation Assumptions…………………………………………………..……………12
5.1
Required Rate of Return (CAPM)
6. Valuation Analysis……………………………………………………………..………12
6.1
Dividend Discount Model (DDM)
6.2
Valuation Using Multiples (P/E)
7. Conclusion and Recommendations……………………………………………….…13
8. Appendix………………………………………………………………………….……14
9. References…………………………………………………………………………...…16
THE WALT DISNEY COMPANY VALUATION PROJECT 2
1. EXECUTIVE SUMMARY
The Walt Disney Company (DIS) is a multinational entertainment and media company
headquartered in Burbank, California. It was founded on October 16, 1923 as the Disney
Brothers Studio, an animation company. In the past 89 years the company has flourished,
employing 156,000 people globally. Its business can be broken into five segments that are
Media Networks, Parks & Resorts, Studio Entertainment, Consumer Products and the Disney
Interactive Media Group (The Walt Disney Company, 2012).
The Walt Disney Company was first traded on the New York Stock Exchange (NYSE) on
November 12, 1957. Other landmark achievements included the merger with ABC in 1996
making Disney the first media company with a major presence in four distribution systems –
filmed entertainment, cable television, broadcasting and telephone wires. This was a major
step up on their competition.
The share price of Disney stock has been somewhat volatile for the last five years, facing
extreme lows due to overall economic decline but looks to have made a full recover with stock
prices at a five-year high in the last several months. Disney’s share price has consistently
remained above their competitors and the industry average.
Disney stock fluctuations may also be accounted for as various acquisitions take place through
the years. Disney is consistently growing, acquiring new companies that fit under the brand
umbrella and expand their capabilities to innovate and provide top quality family
entertainment.
Because Disney is such an established brand and a symbol of family fun and entertainment
worldwide, they have the advantage of brand recognition over their competition. Time Warner
and News Corp operate under corporate titles with various brands having recognizable names.
Disney operates as one big machine, with many gears moving it forward. In addition to brand
recognition, their business diversification, high barriers to market entry, technological
innovation and global presence make them a formidable opponent to their competitors.
Being so global and diversified also comes with risks. The firm faces risks on a by business basis,
such as safety liability in theme parks but also on an industry and market basis. Several risks
could include piracy, natural disaster, or government regulation. We determined, by way of
calculating the company beta of 0.614, that Disney was less risky than the industry.
Using the Dividend Discount Model, we estimated a stock price of $73.06. Using the Valuation
Using Multiples Model, we calculated a stock price of $42.58. Based on this we performed a
weighted average of .7/.3 putting more weight on the DDM. This resulted in a stock price of
$63.92.
Based on our weighted stock price and the current stock price for Disney, we believe that the
stock is undervalued. The weighted stock price that we calculated was $63.92 and the current
stock price is $49.03. According to this we believe that the stock is undervalued by $14.89.
Disney’s financial prospects are optimistic as the company expands in terms of financials,
projects, and international exposure. We would recommend stockholders to keep Disney stock
at this time and to look into purchasing more stock. It is important to look at the size and
possible effects of their future ventures, as they are a large company with big ideas and
international exposure.
THE WALT DISNEY COMPANY VALUATION PROJECT 3
2. INTRODUCTION TO THE WALT DISNEY COMPANY
2.1 Overview
The Walt Disney Company (DIS) is an American diversified entertainment company
headquartered in Walt Disney Studios in Burbank, California. The Walt Disney Company is a
global entity with offices, stores and theme parks around the world. The Walt Disney Company
is currently ranked the largest media conglomerate in the world in terms of revenue (Fortune
500, 2012).
The Walt Disney Company can be broken into five major segments – Media Networks, Parks &
Resorts, Studio Entertainment, Consumer Products and the Disney Interactive Media Group
(The Walt Disney Company, 2012).
2.2 History
On October 16, 1923 The Walt Disney Company came to life in the form of “The Disney
Brothers Studio” an animation company established by the founder, Walt Disney, who signed a
contract with M.J. Winkler to release a series titled the Alice Comedies.
On November 18, 1928, nearly five years later, Disney released Steamboat Willie, which marked
the first appearance of the beloved icon, Mickey Mouse. As the studio gained notoriety and
expanded, it required a change in location. In 1939, Disney Studios moved from Los Angeles to
Burbank, California – where its headquarters remain.
The 1950s were a big decade for Disney with the release of their first live action film, the
premiere of Disneyland on ABC television, the official opening of the Disneyland theme park
and the debut of the Mickey Mouse Club television show. The NYSE records November 12, 1957
as the official listing date of The Walt Disney Company (DIS), which became known as such in
1971 (The Walt Disney Company, 2012)
Disney continued through the decades with the same insatiable growth. Following the 1971
opening of Walt Disney World in Florida came the 1983 opening of Tokyo Disneyland and 1992
opening of Disneyland Paris. Disney was internationally recognized for its family-oriented and
inspirational brand.
In 1995, Disney agreed to purchase Capital Cities/ABC for $19 billion (The Walt Disney
Company, 2012). By acquiring ABC, Disney would become the first media company with a
major presence in four distribution systems – filmed entertainment, cable television,
broadcasting and telephone wires. Finally in 1996, with shareholder and FCC approval, the
merger passed and in the second-largest corporate takeover ever The Walt Disney Company
acquired the profitable ABC television network and its ESPN cable service (NYTimes, 1995).
Furthermore, 89 years after founding, it had progressed into the biggest entertainment
company in the world including media networks, parks and resorts, studio entertainment, and
consumer products. “The Walt Disney Company continues to proudly provide quality
entertainment for every member of the family, across America and around the world” (The
Walt Disney Company, 2012).
THE WALT DISNEY COMPANY VALUATION PROJECT 4
2.3 Share Price Performance
The following chart (Figure 1) displays five years of Walt Disney Company share price versus
competitors Time Warner (TWX) and News Corp (NWSA) from November 2007 to November
2012. Disney hit a five-year low in March 2009 closing at $15.83. The stock prices plummeted as
the company considered and enacted corporation-wide job cuts in the face of economic
decline. However, the stock bounced back, and continued on the upward trend, In October
2012, the stock hit a five-year high, closing at $52.97.
Given that the competition follows a similar pattern it would seem that all correlated by
movements in market indices. However, it is worth noting that since 2009 The Walt Disney
Corporation has stayed consistently abreast of its competition.
Figure 1: DIS Share Prices vs. Competitors (Time Warner TWX and News Corp NWSA)
Yahoo! Finance 2012
The stock has continued to maintain the upward trend exhibited since the dip in September
2011. It most recently closed at $49.26 (November 23, 2012) and although it is still trading
slightly below its five-year high, it is still on the upper percentage of share prices over the fiveyear period (Yahoo! Finance 2012).
2.4 Products and Services
The Walt Disney Company segments its business under five umbrellas:
 Media Networks
 Parks & Resorts
 Studio Entertainment
 Consumer Products
 Disney Interactive Media Group
Overall, all of these services form the Fortune 500 company that drew $40,893 million in
revenue in 2012 (Fortune 500, 2012).
2.4.1 Media Networks
The Media Networks segment is further divided along the Disney/ABC Television Group and
ESPN, Inc. Both divisions handle vast amounts of business within broadcast, cable, radio,
publishing and digital. Businesses under this umbrella include ESPN networks, ABC Family
broadcasting, and Hyperion publishing.
THE WALT DISNEY COMPANY VALUATION PROJECT 5
2.4.2 Parks and Resorts
Exactly as it sounds, this division handles the theme park and resort aspect of the company.
According to the company itself, Disney Parks and Resorts is one of the world’s leading
providers of family travel and leisure experiences (The Walt Disney Company, 2012). The Parks
and Resorts service millions of guests each year and pride themselves on superb customer
service and satisfaction. Disneyland, Walt Disney World, Disneyland Paris, and Disney Cruise
Lines are included in this segment among others.
2.4.3 The Walt Disney Studios
The Walt Disney Company first began as the The Disney Brothers Studio – this business
segment was the platform on which it all began. Today, Disney Studios continues to bring highquality films, music, and stage plays worldwide. Over the year Disney has acquired or begun
ventures such as Marvel Studios, Touchstone Pictures, Pixar Animation Studios, Disney Music
Group, Disneynature and Walt Disney Studios Motion Pictures.
2.4.4 Disney Consumer Products
With the enormous number of beloved characters that originated in Disney cartoons and films,
it comes as no surprise that The Walt Disney Company was able to capitalize on that success by
merchandising their creative. It includes apparel, toys, home décor, books, magazines, food,
beverages, stationary, electronics and animation art.
2.4.5 Disney Interactive
Disney Interactive is the newest arm of the company, founded in 2008. Its mission is to create
high-quality entertainment across digital media platforms. This began with web and computer
games but has expanded with groundbreaking mobile, social, console, virtual, and web
development. This type of additional business segment is an indicator of Disney putting in the
effort to stay ahead of the industry curve with new technology developments.
2.5 Corporate Strategy and Objectives
The Walt Disney Company strives to maintain its position as the world’s leading entertainment
company. It is recognized worldwide for its commitments to family centric entertainment and
related media. Looking to the future, The Walt Disney Company appears to be staying on track
as an innovator in the field, using newer segments such as Disneynature and Disney Interactive
to stay on top of current consumer trends while maintaining their existing consumer base by
carefully cultivating their existing base of staple movies, characters, and theme parks.
Dsineynature is a huge asset to Disney as world trends focus more on social responsibility and
the protection of the environment. It provides an outlet for Disney to showcase that it truly
cares about the world that we live in.
Disney Interactive allows The Walt Disney Company to stay ahead of the curve by focusing on
new technologies and innovations. Disney has a unique vantage point because of the trust they
have built with consumers. Due to their brand, Disney has a near automatic in with parents and
children across the world; they merely have to maintain that trust by continuing to execute topnotch products for families.
However, the key value drivers of the company, with respect to percentage of revenue in 2011
are ESPN Channels (25.6%), Disney Channel & others (6.41%), Parks and Resorts (29.5%),
THE WALT DISNEY COMPANY VALUATION PROJECT 6
Disney Studios (14.7%), ABC Broadcasting (14%) and Consumer Products & Interactive Media
(9.73%) (Trefis, 2012). With Disney’s diversified company, however, a change to a single driver
would not have a crushing impact on the company.
Disney is very optimistic about their future as they also continue to expand internationally,
having broken ground on the Shanghai Disney Resort in 2011.
2.6 Sources of Competitive Advantage
The Walt Disney Company holds five major advantages over any competitor. These advantages
are a result of the worldwide, enormous media conglomerate that they have become. Their
interests are so diversified that they are well protected should a single one falter. The five major
competitive advantages of The Walt Disney Company are:
 Brand reputation
 High barriers to enter market
 Diversification
 Technological advancement
 Global reach
The two main competitors of The Walt Disney Company are Time Warner and News Corp, both
of which cannot topple the Disney giant for various reasons. Mainly, Disney has both of them
beat in terms of global reach, sheer size, and diversification. News Corp had its reputation
dragged through the mud in recent years, with a number of scandals centered around owner
Rupert Murdoch and Time Warner does not have the same level of trust with its consumers.
These factors contribute to Disney’s spot at the top of the diversified entertainment pile. The
final factor is that Disney does not rest. The company has been an innovative one from the very
beginning, nearly 90 years ago, keeping it number one in terms of revenue (Fortune 500, 2012).
3. ANALYSIS OF RISK
3.1 Overview
Walt Disney Co. faces many sources of risk for the firm, the industry and the market. Economic
and political settings influence the price and demand of products, services, and stocks. This is
why these two sources can influence not only the firm, but the industry and the market as well.
If the economy is down, people are going to stop travelling to touristic places, such as the
Disney parks, or going on a cruise. The company will decrease its profits because less income
would come in.
3.2 Sources of Firm Risk
Walt Disney Company has projects outside the United States, including parks in Japan, China,
and France. The source of risk involves laws and regulations in other countries. The firm can be
greatly affected if they have a plan or project to start internationally, because of the country’s
culture and reaction from its citizens and government the company won’t be able to function as
planned.
THE WALT DISNEY COMPANY VALUATION PROJECT 7
Another risk the firm has is being liable for their employees and customers, especially in the
parks. The company has to make sure all the roller coasters and other amusements are tested
before their daily use. If something bad happened, a person can sue the Walt Disney Company.
Competitors are always going to be a risk for any company if the company stops innovating and
developing new products and services. One of the major competitors of Walt Disney Co. is Time
Warner Inc., which competes in the entertainment industry by making movies and having TV
channels.
3.3 Sources of Industry Risk
The diversified entertainment industry faces risks when controlled by the Federal
Communications Commissions (FCC). The FCC can set regulations that can benefit or harm a
company. The Act of 1934, includes TV and radio stations being licensed by the FCC, limits the
amount of TV and radio stations a company can own in a specific market or in a single market.
Another source of risk for the industry is piracy, which includes downloading movies or music
online, or buying a copy of the original DVD or CD. Piracy affects the financial gain of a
company by altering the profit coming in.
3.4 Sources of Market Risk
The sources of risk for the market include natural disasters and weather, because many
companies, forms of communication, and services will be affected by these changes. If these
sources have a great impact, it can freeze the market and affect the selling, buying, and prices
of the stocks.
The sources of risk for the firm, the industry and the market have made Walt Disney Company
the firm they are today and prove what they can achieve by dealing with each factor they have
encountered. The company could be affected by some sources such as natural disasters or
weather, but it can also benefit from the competition and adapt to new regulations set by the
FCC.
3.5 Calculation of Firm Risk (Beta)
The firm’s riskiness can be determined by evaluating Disney’s returns from the past five years.
We computed a beta of .614. According to this beta, Disney is a less risky company than the
market as this is less than the market value of 1. Yahoo! Finance calculated a beta of 1.17, MSN
Money a beta of 1.18 and Google Finance 1.19. This is interesting because the beta we came up
with makes the company appear to be less risky than the market while these other sources
have released betas that make the company appear to be riskier than the market. A possible
source of error is in performing the regression with S&P 500, which is a common comparison
market, instead of using Entertainment Diversified.
THE WALT DISNEY COMPANY VALUATION PROJECT 8
4. FINANCIAL ANALYSIS
4.1 Overview
The overall analysis of The Walt Disney Company is based on a variety of data, beginning with
an analysis of the company’s financial ratios.
Liquidity Ratios
2011
2010
2009
Current Ratio
1.14
1.11
1.33
Quick Ratio
1.01
0.98
1.19
The current ratio measures Walt Disney’s liability to cover their current liabilities in a short
period of time with assets. This shows a decrease in their ability from 2009 to 2010 then a very
small increase from 2010 to 2011. The quick ratio shows a very similar pattern for their ability to
cover short-term liabilities with their most liquid assets. Increasing values show improving
liquidity. Although Walt Disney decreased from 2009 to 2010, they overall increased, showing
improving liquidity.
Profitability Ratios
2011
2010
2009
Profit Margin
0.13
0.11
0.1
ROE
0.14
0.11
0.11
ROA
0.07
0.06
0.06
Profitability ratios for a firm reflect the operating success a company has had over a certain
time period. Profit margin measures the percentage of revenue left after covering all of the
expenses. Higher values reflect better profitability. From 2009 to 2010 profit margin remained
steady and then had an increase from 2010 to 2011. This reflects overall increasing profitability.
ROE is the percentage of money earned per dollar contributed by shareholders. Higher values
indicate better use of resources and better efficiency.
As with profit margin, ROE remained steady from 2009 to 2010 and then increased from 2010
to 2011. ROA is the percentage earned per dollar that was invested in assets. Analysis of ROA is
the same as ROE, meaning that higher value indicate better efficiency. ROA followed the same
pattern, of remaining steady and then increasing. Overall, Walt Disney has increase profitability
from 2009 to 2011 based on profitability ratios.
THE WALT DISNEY COMPANY VALUATION PROJECT 9
Debt Management Ratios
2011
2010
2009
Total Debt Ratio
0.45
0.43
0.44
22.45
15.2
11.14
Times Interest Earned
Total debt ratio tells how much for every dollar of assets the company is in debt. In all three
years, since the total debt ratio is less than one, it means that debt is less than total assets. A
lower debt ratio shows a more stable firm. However, each year Walt Disney increases its debt
ratio slightly, which shows increasing dependence on creditors to fund the firm. TImes interest
earned is a ratio that tells the number of times a company can cover their interest expenses.
Higher values mean that there is more income relative to expenses, and that there is better
solvency. Walt Disney has significantly increased its times interest earned from 2009 to 2010
and 2010 to 2011, indicating increasing amount of income relative to expenses.
Liquidity Ratios
2011
Industry
Current Ratio
1.14
1.5
Quick Ratio
1.01
1.4
Walt Disney’s current ratio is less than the industry’s showing less liquidity than the diversified
entertainment industry, leaving room to make the firm more liquid. The quick ratio is less than
the industry average, again meaning that Walt Disney has room to become more liquid. It
shows that compared to the industry average, Walt Disney has fewer dollars of current assets
for every dollar own in current liabilities.
Profitability Ratios
2011
Industry
Profit Margin
0.13
0.11
ROE
0.14
0
0.07
0.1
ROA
Compared to the industry, Walt Disney has a higher profit margin, meaning that Walt Disney
has better profitability. Walt Disney also has a higher ROE and ROA than the industry average,
meaning that Walt Disney has better efficiency and a better use of company resources.
Debt Management Ratios
2011
Industry
Total Debt Ratio
0.45
0.37
22.45
30.26
Times Interest Earned
THE WALT DISNEY COMPANY VALUATION PROJECT 10
Walt Disney has a higher total debt ratio than the industry average, meaning that Disney relies
more on creditors to fund their expenses. This leaves room for Disney to improve and decrease
their debt ratio, to be on par or lower than the industry average. There is also room to increase
Disney’s times interest earned ratio because it is lower than the industry average. This means
that the industry has better solvency than Walt Disney and more income, relative to expenses.
Walt Disney should work on their debt management to decrease its dependency on creditor
and to increase their income (Brigham & Houston, 2011).
4.2 DuPont Equation (Appendix A)
The DuPont equation gives a more detailed analysis of a firm’s return on assets. It uses three
different equations with factors that cancel out, but that also help show where the company’s
profitability is and how debt is being used. Walt Disney has an increasing DuPont ratio from
2009 to 2010 to 2011. This means that Walt Disney is showing a better use of resources and
improving efficiency.
4.2.1 Net Income/Sales
This first equation of the DuPont Equation is also the formula for profit margin. This measures
the percentage of revenue left after covering all the company’s expenses. Increasing values
show improving profitability. Walt Disney had an increase in net income/sales from 2009 to
2010 and another increase from 2010 to 2011. Although the changes are slight (.09 to .11 to .13),
it shows Walt Disney is increasing in profitability.
4.2.2 Sales/Total Assets
This ratio is a part of the DuPont Equation as well as the total asset turnover ratio. Since it is a
measure of sales to total assets, the larger the ratio is, indicates higher amount of profit taken
in by Walt Disney, compared to the assets they already have. From 2009 to 2010, this ratio
decreased and then increased again from 2010 to 2011. This shows that overall the ratio is
decreased from 2009 to 2011, meaning that Walt Disney hasn’t increased profitability over this
time period.
4.2.3 Total Assets/Common Equity
This portion of the DuPont equation helps to describe how Walt Disney uses their debt in order
to finance their assets. Therefore, as the ratio increases, it indicates that Walt Disney is relying
more on debt in order to finance assets. This ratio remained steady over the span of 2009 to
2011. However there was a slight increase from 2009 to 2010, and then a very slight decrease
from 2010 to 2011, meaning that Walt Disney has used a little more debt to finance their assets
over this time period (Brigham & Houston, 2011).
4.3 Trend/Historical and Benchmark
According to the trend and historical rates calculated percentages from 2009-2010 (Appendix
B), there were significant amounts of decreases in cash and cash equivalents, as well as costs.
This indicates that in this time period Disney was not growing; it had a decrease in expenses
and therefore also a decrease in revenue. However, from 2010-2011, Disney had a lesser
decrease in costs (-18.50%, compared to -8.72%) showing that while their costs decreased, they
managed to have a large increase in revenue (17.01% from 2010-2011 versus -30.29% from
2009-2010. Overall, the company seems to be growing in terms of its revenue.
THE WALT DISNEY COMPANY VALUATION PROJECT 11
Liabilities increased from both 2009-2010 and 2010-2011, very similar amounts (7.84% and
9.40%, respectively). The small increase in liabilities compared to the grand increase in revenue
for 2010-2011, shows Walt Disney’s growth as well in those years. The significant decrease in
revenue in 2009-2010 may have been to make investments leading up to the increase in
revenue for 2010-2011.
The benchmark analysis shows extremely close percentages for all three years (2009, 2010 and
2011) of accounts compared to total assets. Accounts receivable held the greatest percentage
for current assets for all three years. For Walt Disney, this could include merchandise bought on
corporate accounts as well as corporate accounts for the theme parks, sports center, ticket
sales, conference centers and resorts. For non current assets, the biggest loss of money came
from depreciation. This would be depreciation of theme park equipment and hotel furnishings
and buildings. The large decrease would affect any firm in the diversified entertainment
industry, as all firms would have equipment that loses value as time goes on.
The largest amount of assets for Walt Disney all three years is their Parks, etc. account. Parks
include the theme parks, which include hotels and attractions for customers. Most firms in the
industry would probably also have Parks as a large asset account because this is where they
attract customers to visit and spend money. Walt Disney’s greatest liability for each of the three
years is the Borrowings account. This would include loans for equipment, construction, and
continuous upkeep of the theme parks, resorts and stores. For any firm in the industry that
owns parks and resorts, this would most likely be a large account, given the need to constantly
upkeep the area where customers spend their time.
5. VALUATION ASSUMPTIONS
5. 1 Required Rate of Return (CAPM)
We must compute the Firm’s Cost of Capital in order to find r for the dividend discount model.
The formula for CAPM is: Ri=Rf+Bi(Rm-Rf). We used an Rf rate of 2.80% (a 30 year treasury
bond rate). We used a market risk premium of 5%. Through a regression we found a beta of
.614. Therefore Ri=(.0280)+(.614)(.05) and Ri is found to be .5.87%.
6. VALUATION ANALYSIS
6.1 Dividend Discount Model (DDM)
By using the Dividend Discount Model, we came up with a stock price of $73.06. R was
computed using the CAMP model to be 5.87%. G can be estimated by finding ROE*plowback
ratio. The ROE for September 2012 was 14.01%. Dividing the dividend per equity share by the
earnings per share, and then subtracting this from 1 can calculate the plowback ratio.
.60/.68=.88, 1-.88=.12 The plowback ratio is therefore calculated to be .12. .1401*.12=0.017 is
one estimate for g. We could also use the model D1=D0 (1+g). Since .60=. 40(1+g) =.5, .5 is
THE WALT DISNEY COMPANY VALUATION PROJECT 12
another estimate for g. This value is so high because it is only taking into account two years and
there was a large increase in the dividend that year compared to other years.
Therefore, based on data from other recent years and taking into account our model, we
decided on a g of .5. Using dividend data for 2011, we arrived at a dividend 1 of $0.61. We
multiplied $.60 by 1 plus our growth rate to arrive at this dividend per share. To find the stock
price we divided .60 by .0587-.05=0.0087. p0=dividend/(r-g). P0=.61/.0087 =$73.06. We estimate
a stock price of $73.06 using the DDM.
6.2 Valuation Using Multiples (P/E)
Using the valuation using multiples model, we calculated a stock price of $42.58. To valuate
Disney using multiples we first found Disney’s most recent earnings per share and the industry’s
P/E ratio. Disney’s earnings per share for September 30, 2012 are 0.68. As the P/E ratio for the
firm was unable to be located, the average of the main competitors was instead determined to
be 62.62. The result of multiplying these two values is $42.58. According to this model, the
stock is slightly overvalued. As we have two different stock prices from these two models, we
needed to take a weighted average of the two. In our valuation using multiples model we were
unable to locate the P/E ratio for the firm making this model less reliable. Based on this we
performed a weighted average of .7/.3 putting more weight on the DDM. This resulted in a
stock price of $63.92.
7. CONCLUSIONS AND RECOMMENDATION
Based on our weighted stock price and the current stock price for Disney, we believe that the
stock is undervalued. The weighted stock price that we calculated was $63.92 and the current
stock price is $49.03. According to this we believe that the stock is undervalued by $14.89.
Disney’s financial prospects for the future look very good as they are continuing to expand, in
terms of financials, projects, and international exposure. We would recommend stockholders to
keep Disney stock at this time and to look into purchasing more stock. It is important to look at
the size and possible effects of their future ventures, as they are a large company with big ideas
and international exposure.
THE WALT DISNEY COMPANY VALUATION PROJECT 13
8. APPENDIX
8.1 Appendix A (DuPont Equation)
Net
Sales/Total
Total Assets/Common
Du Pont
Income/Sales Assets
Equity
Value
2011
0.128579463
0.566981865
2.380644309 0.173554265
2010
0.11331214
0.549995665
2.408337973 0.150090479
2009
0.099836787
0.572730009
2.334381241 0.133478808
8.2 Appendix B (Regression Analysis)
Regression Statistics
Multiple R
R Square
Adjusted R Square
Standard Error
Observations
0.215309118
0.046358016
0.029328695
0.157182609
58
ANOVA
df
Regression
Residual
Total
Intercept
0.010926524
Intercept
1.010926524
1
56
57
SS
MS
F
0.067256845 0.067256845 2.722246868
1.383556867 0.024706373
1.450813712
Coefficients
Standard Error
0.020463578
0.020641828
0.613714213
0.3719653
Lower 95%
-0.020886971
-0.131421823
Upper 95%
0.061814128
1.358850249
Significance F
0.104557282
t Stat
0.991364651
1.649923292
P-value
0.325771919
0.104557282
Lower 95.0%
-0.020886971
-0.131421823
Upper 95.0%
0.061814128
1.358850249
THE WALT DISNEY COMPANY VALUATION PROJECT 14
8.3 Appendix C (Financial Statements)
Assets
Current Assets
Cash and Cash Equivalents
Accounts Receivable, net
Merchandise Inventories, net
Television Costs
Deferred Income Taxes
Other Assets
Total Current Assets
Non-Current Assets
Film and Television Costs
Investments
Parks, etc
Accumulated Depreciation
Projects in Progress
Land
Intanglible Assets, Net
Goodwill
Other Assets
Total Non-Current Assets
Total Assets
Liabilities and Shareholders' Equity
Current Liabillities
Accounts Payable
Current Portion of Borrowings
Unearned Royalties
Total Current Liabilities
Long Term Liabilities
Borrowings
Defferred Income Taxes
Other Long-term obligations
Total Long-term Liabilities
Total Liabilities
Equity
Common Stock
Retained Earnings
Comprehensive loss
Total Shareholders' Equity
Total Liabilities and Shareloaders' Equity
$
$
$
2009
$
3,417
4,854
1,271
631
1,140
576
11,889
%
5.41% $
7.69%
2.01%
1.00%
1.81%
0.91%
18.84%
2010
$
2,722
5,784
1,442
678
1,018
581
12,225
%
3.77% $
8.02%
2.00%
0.94%
1.41%
0.81%
16.95%
-18.50%
-13.89%
-11.41%
-7.57%
41.32%
-15.71%
97.88%
-2.73%
17.20%
-11.45%
0.00%
-8.72%
-3.10%
8.03%
6.53%
20.41%
0.27%
0.79%
0.19%
-3.47%
10.61%
4.22%
6,362
3,055
2,671
12,088
8.82%
4.24%
3.70%
16.76%
8.78%
94.86%
20.31%
23.13%
4.14%
30.00%
5.12%
9.89%
10,922
2,866
6,795
20,583
32,671
15.14%
3.97%
9.42%
28.54%
45.30%
-11.87%
44.58%
12.12%
0.57%
7.84%
7.82%
8.97%
11.32%
9.11%
9.40%
30,296 42.01%
41.52%
38,375 53.21%
49.60%
(2,630) -3.65%
-2.72%
1,258,863
88.41%
72,124 100.00%
100.00% $
6.28%
10.61%
14.42%
8.43%
9.65%
5.43%
11.79%
39.82%
8.12%
4.05%
51.45%
-27.56%
2.14%
1.85%
3.56%
34.35%
3.20%
27.88%
100.00% $
4,773
2,513
32,875
(18,373)
2,180
1,124
5,081
24,100
2,708
17,806
69,206
6.62%
3.48%
45.58%
-25.47%
3.02%
1.56%
7.04%
33.41%
3.75%
24.69%
100.00% $
5,616
1,206
2,112
8,934
8.90% $
1.91%
3.35%
14.15%
6,109
2,350
2,541
11,000
8.83% $
3.40%
3.67%
15.89%
18.21%
2.88%
8.63%
29.72%
43.87%
10,130
2,630
6,104
18,864
29,864
14.64%
3.80%
8.82%
27.26%
43.15%
27,038
31,033
(1,644)
56,427
63,117
42.84%
49.17%
-2.60%
89.40%
100.00% $
28,736
34,327
(1,881)
61,182
69,206
2009-2010 2010-2011
2011
Trend
Trend
%
$
4.42% -30.29% 17.01%
3,185
6.88%
4.28%
8.57%
6,182
-0.71% 10.61%
2.21%
1,595
-0.59%
-5.97%
0.93%
674
2.06% -21.85% 46.07%
1,487
9.12%
0.88% -11.73%
634
12.53%
13,757 19.07% -10.02%
6.04%
4,357
3.38%
2,435
35,515 49.24%
(19,572) -27.14%
3.64%
2,625
1.56%
1,127
7.10%
5,121
24,145 33.48%
3.62%
2,614
19,695 27.31%
72,124 100.00%
5,125
2,554
32,475
(17,395)
1,350
1,167
2,247
21,683
2,022
17,597
63,117
11,495
1,819
5,444
18,758
27,692
$
Walt Disney, Inc
Balance Sheet
Years Ended 200x
Dollars in Millions
4.22%
Walt Disney, Inc
Income Statement
Years Ended 200x
Dollars in Millions
$
$
$
2011
2010
2009
Total Net Sales:
Net Revenue
Costs and Expenses
Gross Margin
Restructuring and Impairment Expenses
Operating Income
Income Before Taxes
Income Taxes
Net Income
%
37,068 100.00% $
83.41%
30,918
16.59%
6,150
1.33%
492
15.26%
5,658
15.26%
5,658
5.53%
2,049
9.74% $
3,609
$
38,643
31,746
6,897
270
6,627
6,627
2,314
4,313
%
100.00% $
82.15%
17.85%
0.70%
17.15%
17.15%
5.99%
11.16% $
$
%
41,553 100.00%
33,455 80.51%
8,098 19.49%
0.13%
55
8,043 19.36%
8,043 19.36%
6.70%
2,785
5,258 12.65%
Trend
Trend
2009-2010 2010-2011
4.25%
2.68%
12.15%
-45.12%
17.13%
17.13%
12.93%
19.51%
7.53%
5.38%
17.41%
-79.63%
21.37%
21.37%
20.35%
21.91%
THE WALT DISNEY COMPANY VALUATION PROJECT 15
9. REFERENCES
Brigham, E., & Houston, J. (2011). Fundamentals of financial management. (7th ed.).
Mason, OH: Cengage.
"DIS Competitors." DIS Competitors. Yahoo! Finance, n.d. Web. 21 Oct. 2012.
<http://finance.yahoo.com/q/co?s=dis+Competitors>.
"DIS Industry: Entertainment - Diversified | Walt Disney Company (The) Commo Stock
- Yahoo! Finance." DIS Industry: Entertainment - Diversified | Walt Disney Company (The)
Commo Stock - Yahoo! Finance. Yahoo! Finance, n.d. Web. 21 Oct. 2012.
<http://finance.yahoo.com/q/in?s=DIS>.
"DIS Profile | Walt Disney Company (The) Commo Stock - Yahoo! Finance." DIS
Profile | Walt Disney Company (The) Commo Stock - Yahoo! Finance. Yahoo! Finance, n.d.
Web. 21 Oct. 2012. <http://finance.yahoo.com/q/pr?s=DIS>.
"Disney History." Walt Disney History. Walt Disney Company, n.d. Web. 20 Oct. 2012.
<http://thewaltdisneycompany.com/about-disney/disney-history>.
“Fortune 500.” CNN Money, 2012. Web. 23 Nov 2012.
<http://money.cnn.com/magazines/fortune/fortune500/2012/industries/145/>.
"NWS Profile | News Corporation Stock - Yahoo! Finance." NWS Profile | News
Corporation Stock - Yahoo! Finance. Yahoo! Finance, n.d. Web. 21 Oct. 2012.
<http://finance.yahoo.com/q/pr?s=NWS>.
“Disney Company Overview.” What’s Driving the Stock. Trevis, 2012. Web. 23 Nov 2012.
<http://www.trefis.com/company?hm=DIS.trefis&#>.
"TWX: Summary for Time Warner Inc. New Common Sto- Yahoo! Finance." Yahoo!
Finance. Yahoo! Finance, n.d. Web. 21 Oct. 2012.
<http://finance.yahoo.com/q?s=TWX>.
THE WALT DISNEY COMPANY VALUATION PROJECT 16
THE WALT DISNEY COMPANY VALUATION PROJECT 17