Added More Disney

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I will preface by saying I have a few updates to make.  I haven’t written here in a few weeks.  With that said, I just made three purchases yesterday!  In this post I’ll cover why I added more Disney.  The others will be in a separate post.

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Disney

I purchased 25 more shares at an average cost of $97.  This adds to my previous 50 shares that I bought in several tranches from $88 to $106.  I’ve been a holder since the end of 2015 and the stock has not gone anywhere.  Oh it’s traveled, up then down then back up then back down again.

Recently they are working on pulling all of their content into their own streaming service.  Time will tell whether this will work but I have to believe management that it will work.  When it was announced both Disney and Netflix were down on the news so clearly the market is not necessarily a fan of the move.  This will give them more control of their content and how it is distributed.  As a father with two kids, odds are good I’ll end up on the service.

CEO Bob Iger also recently reiterated that full year earnings would be “about” 2016 numbers.

FAST Graphs

From FAST Graphs, shares look appropriately valued today.

The blue line represents the average multiple the market has paid, in this case over a 13 year time frame.  The kicker here is if Disney can hit their expected growth target of 11% for the next fiscal year.  Should they, the forward looking adjusted P/E of 14.9 looks quite reasonable for a company with the quality of Disney.

YCharts

Another metric I’ve recently come across is the notion of “Shareholder Yield“.  The wikipedia article will give a more detailed explanation but shareholder yield is the summation of dividend yield + net buybacks + net debt issued.

While Disney has a sub 2% dividend yield, they have been buying back shares quite consistently since 2010.  Shares peaked at nearly 2B and today are 25% lower at about 1.5B shares outstanding.  This benefits long term shareholders as they own a larger slice in the company.

With that said, the balance sheet has grown considerably over the past few years.  This is not a surprise, the fed policy of ZIRP and now near ZIRP has led to company’s taking out cheap debt.  The effectiveness of the use can be argued but that’s neither here nor there.

Total long term debt has grown from about $12B to over $20B in the most recent reporting.

An astute reader might say, if net debt is a component of shareholder yield, how can the shareholder yield still be positive with all of this debt coming on board?

The answer is that the amount being issued is still less than the component being spent on share buybacks.  What this graph tells me is yes, they are issuing debt, but the vast majority of buybacks is coming through operating cash flow.

Conclusion

Disney is still one of my favorite long-tailed stock ideas.  They are the king of content and I suspect their upcoming streaming service will be successful also.  I believe shares today represent a good value in an otherwise expensive market and there is a possible growth kicker coming with a bump in earnings next year.

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