Current Price: ~ $49/share
Yield: ~ 1.54%
Disney owns the rights to some of the most famous characters ever created, including Mickey Mouse and Winnie the Pooh. These characters and others are featured in several theme parks Disney owns or licenses around the world. Disney makes live-action and animated films under several labels and owns ABC, Disney Channel, and ESPN. Disney also owns a 42.5% stake in A&E, The History Channel, and Lifetime Networks. The company generates about 25% of its sales from outside the United States.
Estimated WACC for the firm today is 10.70% using the Capital Asset Pricing Model and the company's recent SEC filings.
Recent free cash flows and noted growth rates:
|
Year
|
FCF
$Millions
|
|
2003
|
1852
|
|
2004
|
3217
|
|
2005
|
2446
|
|
2006
|
4759
|
|
2007
|
3855
|
|
2008
|
3860
|
|
2009
|
3311
|
|
2010
|
4468
|
|
2011
|
3435
|
|
2012
|
4182
|
Average Annual Growth FCF: ~ 16%
CAGR FCF: ~ 9%
Consensus Forecast Industry 5-Year Growth: ~ 18% per year
Consensus Forecast Company 5-Year Growth: ~ 11% per year
Internal Growth Rate: ~ 7%
Sustainable Growth Rate: ~ 14%
Scenario 1
Average FCF (2012, 2011, 2010) is $4028 million
Average FCF (2012, 2011, 2010) is $4028 million
- Start at $4028 million FCF
- Assume a 5-year growth rate in FCF of 11% per year, then no growth or 0% growth in FCF per year forever:
Discounted Cash Flow Valuation
The firm's future free cash flows, discounted at a WACC of 10.70%, give a present value for the entire firm (Debt + Equity) of $62640 million. If the firm's fair value of debt is estimated at $15146 million, then the fair value of the firm's equity could be $47494 million. $47494 million / 1770 million outstanding shares is approximately $27 per share and a 20% margin of safety is $22/share.
|
Year
|
FCF
$Millions
|
|
0
|
4028
|
|
1
|
4471
|
|
2
|
4963
|
|
3
|
5509
|
|
4
|
6115
|
|
5
|
6787
|
|
Terminal
Value
|
70392
|
The firm's future free cash flows, discounted at a WACC of 10.70%, give a present value for the entire firm (Debt + Equity) of $62640 million. If the firm's fair value of debt is estimated at $15146 million, then the fair value of the firm's equity could be $47494 million. $47494 million / 1770 million outstanding shares is approximately $27 per share and a 20% margin of safety is $22/share.
Scenario 2
All else being equal,
All else being equal,
- Assume a 5-year growth rate in FCF of 11% per year, then 5.25% growth in FCF per year forever:
Discounted Cash Flow Valuation
|
Year
|
FCF
$Millions
|
|
0
|
4028
|
|
1
|
4471
|
|
2
|
4963
|
|
3
|
5509
|
|
4
|
6115
|
|
5
|
6787
|
|
Terminal
Value
|
138163
|
- Present Value of the entire firm (Debt + Equity): $103402 million
- Value of Equity: $88256 million or $50/share
- 20% margin of safety is $40/share
Sources
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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