) competes with other media and broadcasting companies like Time
), News Corp (
), CBS (
) and Viacom (
) in the media and entertainment business. The company recently
released its fiscal Q1 2011 earnings and, given improvements
observed in its media networks segment, we have updated
our price estimate for Disney's stock to $45.20.
Our estimate stands at a roughly 5% premium to market price.
Given improvement across media networks as well as parks &
resorts, Disney seems to be emerging strongly from the economic
Improvements Led by ESPN
While media networks revenue grew by about 11%, operating margin
growth was up 47% compared to the same period last year. Media
networks profit margin (EBITDA margin) for the recent quarter was
about 24% compared to roughly 19% for fiscal Q1 2010.
Factors that contributed towards this improvement included the
ESPN ad revenues showed significant gain, rising 34% year-over-year
(YOY) in fiscal Q1 2011. Disney commented that strong demand for
NFL programming (and corresponding ratings growth) was one notable
aspect contributing towards the increase. When ratings go up,
networks have greater bargaining power and tend to charge higher
prices for ads.
See our full analysis and $45.20 price estimate
ESPN is Disney's most valuable product segment, by our
estimates, accounting for an estimated 28% of the company's stock
value. Thus, any improvement in this segment has a greater relative
affect on company value than any other product line.
The interactive chart above showcases the independent affect of
ESPN's EBITDA margin improvement on Disney's stock value.
Beyond cable networks like ESPN, Disney's broadcasting network also
saw significant improvement in ad revenue with growth from owned TV
stations at 20% YOY in fiscal Q1 2011. This result was partially
driven by higher political advertising demand. The company noted
that the momentum of ad revenue growth has continued into fiscal Q2
The interactive chat below illustrates the affect of ABC
broadcasting ad pricing on Disney's stock value.