Every kid has a positive image of Disney World and it seems that investors are joining their younger brethren in their opinion of the company. The company (DIS) released stellar earnings this week and is trading at a new 52-week high. I think there is nothing stopping the stock from hitting $50 per share in the next year or so.
Mickey Momentum
Earnings soared by 54% in its latest quarter, which is no small feat for a company of its size. The company earned 68 cents per share, which trounced estimates by 12 cents. Usually the company does not exceed estimates by this large a margin. Revenues also came in nicely ahead of expectations. So what were the main drivers of the strong results?
Disney’s media properties such as ESPN have been performing remarkably well. The sports network has never been more popular and is bringing in huge advertising revenues. Sales of advertising grew 27% at ESPN, as its viewership continues to grow.
Of course the core of Disney is its theme parks and they are doing some great business. Operating income bolted ahead by 25% at its theme parks unit and attendance grew despite some rocky weather during the quarter. Disney has been able to raise ticket prices slightly even though economic conditions aren’t as robust as they have been in the past.
Onward to $50
With the stock trading at a new 52-week high, is there more upside coming? I believe the answer is an emphatic “yes.” I love the fact that every unit was strong during the quarter, so one area isn’t propping up the rest of the company. This sort of broad-based momentum has legs and will propel the stock above $50 in the coming year. Analysts will be raising their earnings estimates and I think it Disney can earn $2.60 this year. If you apply a 20x multiple to those earnings, you get $52. That multiple might seem a bit high, but it isn’t unreasonable given the franchise and the earnings momentum.
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