We have maintained our long-term Neutral recommendation on The Walt Disney Company (DIS) with a target price of $58.00, following the company's first-quarter fiscal 2013 earnings. Moreover, shares of Disney retain a Zacks Rank #3 (Hold).
Why the Reiteration?
Disney reported yet another healthy quarter as revenue gains at the Parks and Resorts business and strong performance of the Media Networks division continue to boost the company’s financials.
Disney’s first-quarter fiscal 2013 earnings of 79 cents a share surpassed the Zacks Consensus Estimate of 77 cents but inched down 1.3% year over year. Total revenue increased 5% year over year to $11,341 million and exceeded the Zacks Consensus Estimate of $11,237 million.
Going forward, the company stated that, domestic resort reservations and booking rates are witnessing healthy trends. Further, with a strong slate of releases including Iron Man 3, Oz: The Great and Powerful, Monsters Inc. 2, The Lone Ranger and Planes, the company remains well positioned to drive revenue growth in the coming quarters.
Moreover, Disney entered into several content distribution agreements which strengthen its multichannel subscription model by adding more platforms to deliver its content. The company remains focused to generate increased income from affiliate deals and retransmission renewals.
However, Disney’s increased capital spending toward expanding its Parks and Resorts business is likely to exert pressure on the margins in the near term as evident from the company’s recently concluded quarter. Total segment operating income during the quarter decreased 3% year over year to $2,380 million, whereas total segment operating margin decreased approximately 170 basis points to 21%. Further, decelerating advertising trends keep us on the sidelines.
Other Stocks to Consider
Until any further upward revision in the rating of Disney, other stocks in the media & entertainment universe worth considering include Time Warner Inc. (TWX), CBS Corp. (CBS) and Digital Cinema Destinations Corp. (DCIN), all holding a Zacks Rank #2 (Buy).