About Disney

You know how Netflix has been in the news a lot lately? Well, so has Disney!

As it relates specifically to the company and its financial efficacy, Disney is currently in a tax battle with the Governor of Florida, Ron DeSantis. How much in taxes the company already pays versus how much they may be required to pay in the future (in the state of Florida) have been major topics of discussion and fodder for the pundits. Don’t get me wrong, this is important stuff if you’re considering investing in Disney or are currently a shareholder. It would likely not be very favorable if the company you’ve invested your money in lost any of its tax privileges.

In fact, in 2021 the company reportedly shelled out just north of $780 million “in state and local taxes.” It will be a major financial burden for the company if they’re forced to pay any higher than last year’s amount in taxes.

Panning away from the company’s current problems, let’s briefly discuss a major bright spot for Disney, its subsidiaries.

For instance, if The Walt Disney Company name and brand is strong enough as is, how much more brand power can the company have to comfort shareholders?

Plenty.

Disney either fully owns or has partial stakes in ESPN, ABC, Lifetime, History, A&E, and FX.

Oh, and they also own Marvel Studios and Lucasfilm.

Oh, and Hulu too.

Brand power, am I right?

It would be a true travesty if we neglected to mention the fact that they also are well-known for their iconic theme parks in Florida, California, Shanghai and Hong Kong among other locations.

Don’t forget the cruises!

Maybe we reestablished some information you already knew or maybe you had no idea Disney had its hands in so many other huge companies. Regardless, now that you know a little more about the company, let’s talk about their financials.

Disney’s stock numbers

The company has a market capitalization of just north of $211 billion and a current price-to-earnings ratio of 66.

Looking at the company’s P/E ratio alone, the stock’s current valuation is like one of its most iconic characters; Goofy.

Given that the general benchmark for a stock trading at fair value is 20 (below 20 is undervalued and above 20 is overvalued), Disney is not trading at any sort of discount or anywhere near what one should pay for a share (fair value).

While not the best start, with the company’s shares currently trading at around $116, if you want to buy shares of Disney at or near fair value, it seems like you’ll want to wait for the stock’s price to come back to earth.

We should also note that the company does not currently offer a dividend, which isn’t surprising since they seemed to cut its dividend (at least, for the time being) when the COVID-19 pandemic began rearing its ugly head. The company made a decision to stop issuing the dividend at that time, likely to keep as much cash as possible in order to ride out the pandemic storm. While a dividend would be nice, we completely understand why the company decided to ditch it and we respect their decision to put the financial wellbeing of the company first, especially during times of uncertainty.

Disney’s stock financials

Onto Disney’s balance sheet, the company oversees just over $203 billion in total assets and approximately $115 billion in total liabilities.

Frankly, the company has a much stronger balance sheet than we initially assumed. However, we feel comfortable regarding the company’s general financial state (so far) given their strong total asset-favored balance sheet.

According to the company’s income statement, Disney’s total revenue stood at slightly above $55 billion in 2017 and has since risen to around $67.4 billion in 2021. Interestingly, during 2019 and 2020 (the brunt of the pandemic so far) the company’s revenue spiked (especially in 2019) to nearly $70 billion. This is likely a result of their venturing further into the streaming space which saw a significant amount of growth as a result of the pandemic.

We love this.

The countercyclical safety that Disney has created and is still developing is very assuring to investors such as ourselves. Specifically, Disney having their streaming platform, Disney+, as well as a large ownership stake in Hulu and other TV channels we’re all likely too familiar with after the lockdowns.

They are also likely to do well given the current state of Netflix.

However, if Disney can find ways to make money even when their amusement parks are shut down or one aspect of their business is suffering, they seem to have others in their back pocket waiting to be used.

Moving onto more financials, the company’s cash flow statement has been generally steady between 2017 and 2019 however it flew down to just over -$2.4 billion in 2020. This can likely be attributed to problems associated with COVID-19, therefore we are not terribly worried about this bad year, as they seemed to be financially equipped (according to their balance sheet) and, as things continue to become more “normal,” their net income (found in the cash flow statement) will likely continue to rise over time.

Disney doesn’t appear to be horrible at churning out a profit. Specifically, the company’s net profit margin is slightly above that of the industry average. As an investor, as long as Disney is producing an annual net profit margin that is higher than the industry, we’re happy campers.

Disney’s returns

Additionally, the company’s annual return(s) on equity, investment and assets are all basically in line with the industry average as well.

We’ve established that Disney has a strong balance sheet, average (but fair) financials and a fair ability to turn a profit. This is all good, however it doesn’t warrant investors paying a massive premium for the seemingly inflated share price the company is currently trading at.

Pictured above is former Chairman, Executive Chairman and CEO of Disney, Robert Iger.

While Disney, in our opinion, is one of those “hold and forget about” stocks that you definitely wouldn’t mind having in your portfolio, waiting for the stock to trade closer to fair value would likely be a good idea.

Should you buy Disney stock?

The perks of owning shares in Disney include investing in a company with an awesome amount of brand power, a sizable moat, strong balance sheet and countercyclical business model.

The drawbacks are that the company’s share price is too high given its price-to-earnings valuation and in the short term, they are facing some uncertainty with Florida’s government.

Weighing and considering all of these factors, we currently give Disney stock a “hold” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.