Disney, for the first time in the past decade, reported a negative net income i.e. Disney reported a loss for its 2020 fiscal year. Yet, the stock price does not seem to be impacted by this operational impact caused by the government shutdowns. It’s important for us, value investors, to review the fundamentals of Disney to understand the true worth of the stock. This week, I fundamentally analyze Disney’s stock. I review Disney’s key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and look at expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account 2018’s free cash flow of $9,830 million figure (we disregarded the 2019 figure because of it’s one time purchase of Twenty First Century Fox, and the 2020 figure because of the unusual and temporary impact caused by the pandemic), a 5% growth rate of FCF (growth for the next 10 years), 10% discount rate, 3% long term growth rate (growth from 10 year mark to perpetuity), 1,808 million shares outstanding, and $52,917 million of long term debt, the DCF analysis yields us an intrinsic value of $61.16 per share. Using the current stock price of about $153 per share, and taking into the shares outstanding and future projects of free cash flows, we get the expected rate of return of 1.0%.
0:33 Key Ratios Analysis
12:56 Discounted Cash Flow Analysis / Intrinsic Value
14:29 Expected Rate of Return Calculation
15:53 Summary / Conclusion
2020 10K Annual Report: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Company overview: The Walt Disney Company, commonly known as Disney, is an American diversified multinational mass media and entertainment conglomerate headquartered at the Walt Disney Studios complex in Burbank, California.
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