Here’s an interesting article from Forbes.com:
With the Walt Disney Co.’s dependence on consumers’ travel and entertainment budgets, many on Wall Street expected the company to fall victim to weak consumer spending. Disney has proved skeptics wrong over the last six months, beating consensus profit estimates by more than 13% in the December and March quarters and showing healthy sales growth at its amusement parks.
But concerns about consumer spending have worsened, reflecting high energy prices and troubles in the labor and housing markets. Disney (nyse: DIS – news – people ) shares have retreated close to the two-year low reached in January, presenting a buying opportunity for patient investors.
While near-term profit growth will likely be sluggish. Disney is well positioned to deliver double-digit yearly growth over the long haul. Disney, a long-term buy, offers superior total-return potential over the next 24 to 36 months.
Disney’s parks and resorts performed well in the year ended in March, with quarterly revenue growth ranging from 5% to 9%, including an 8% increase in the March quarter. Attendance rose at least 3% in each of the four quarters, and occupancy rates have averaged 89%.
Theme parks and resorts provided roughly 29% of revenue and 19% of profits in the six months ended in March. Disney credits the segment’s 28% profit growth to interest in popular themes featured at the park, such as tie-ins to the Hannah Montana and High School Musical franchises
Also contributing to growth is a focus on value-conscious travelers: 79% of Disney’s rooms are now considered midpriced or low-priced, compared with less than half of the rooms in 1991. In addition, international parks, new vacation-club sales and a weak dollar have contributed to resort growth. The dollar’s weakness attracts foreign tourists to the U.S. and keeps American vacationers in the country.
In the past, Disney’s parks have tended to suffer more toward the end of recessions, as families put off travel until their finances looked better. The company expects a slowdown in park growth over the next year.
While, investors may need patience with Disney, the company still has plenty going for it. Media networks (41% of revenue, 50% of profits) are delivering strong results on healthy advertising sales, particularly at Disney’s cable-TV stations. Despite disappointing results from this year’s Prince Caspian release, studio entertainment (23% of revenue, 21% of profits) should perform well in coming quarters, thanks in part to the popularity of Wall-E. Disney plans to release 10 animated films over the next four years.
Finally, Disney’s consumer products division (7% of revenue, 10% of profits) delivered revenue and profit growth of at least 20% in the six months ended March, helped by videogame launches.
Disney shares trade at 13 times estimated per-share earnings over the next 12 months, well below the five-year average forward price-to-earnings ratio of 17. Consensus estimates project per-share-profit growth of 21% in fiscal 2008, ending in September, and 6% in fiscal 2009. Disney’s valuation and modest 2009 profit target reflect downbeat expectations for consumer spending, and leave plenty of room for upside surprises.
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