The Walt Disney Company (DIS): Growth and Valuation

The Walt Disney Company (NYSE:DIS) has performed very well for its shareholders lately, and has been on a consistent uptrend for the past several years. Partly as a result of a series of good acquisitions, and partly because of the improving overall economy, The Walt Disney Company (NYSE:DIS) is looking stronger than ever. However, with shares sitting right near their 52-week highs, is The Walt Disney Company (NYSE:DIS) getting a bit too expensive? In other words, is all of the future growth already priced in?

About Disney

The Walt Disney Company (NYSE:DIS) is one of the world’s largest and most well-known media conglomerates. Although Disney is perhaps most famous for its animated films and theme parks, there is a lot more to the company.

Theme parks and resorts make up just 30% of Disney’s revenue, and include the famous Walt Disney World and Disneyland resorts, the Disney Cruise Line, Euro Disney, and partial stakes in the Paris and Hong Kong Disney theme parks. The Studio Entertainment segment makes up 14% of the company’s revenue and includes the Walt Disney and Touchstone entertainment brands.

The largest contributor to Disney’s revenue, at 46%, is the Media Networks segment. This includes, among other things, the ABC networks, an 80% stake in ESPN, and the Disney Channel. The remaining 10% of revenue comes from merchandising and licensing, as well as the video games division.

Growth and valuation

As mentioned, The Walt Disney Company (NYSE:DIS) has grown lately through a few savvy acquisitions, including Lucasfilm in December 2012, which is best known for the Star Wars films. The company’s other recent additions include Marvel Entertainment and Pixar.

Another growth strategy of the company has been to invest considerable resources in the expansion and revitalization of its theme parks and resorts. Some of its parks do need a facelift…for anyone who has been to the Magic Kingdom Park in Orlando lately, “Tomorrowland” seems to have become “Today-land”!

In addition to improving the existing parks, Disney recently began construction of a new park in Shanghai, due to open in 2016. The company also purchased two new cruise ships, the Disney Dream and the Disney Fantasy.

My only real concern in terms of Disney’s growth is that it may be already priced into the stock. At 19.7 times TTM earnings, The Walt Disney Company (NYSE:DIS) is trading much higher than its historic average, which is closer to 17. Although analysts are projecting a 13% forward growth rate, it is not without risk. I just don’t know if I feel comfortable paying such a premium for a company that is so dependent on discretionary spending.

Competitors

As an alternative, investors could choose another large, diversified media company, such as News Corp (NASDAQ:NWS) or Viacom, Inc. (NASDAQ:VIAB). I recently wrote an article about the pending split of News Corp (NASDAQ:NWS) and what it may mean for the company, but to make a long story short, News Corp is planning to separate its publishing (Wall Street Journal, New York Post, etc.) and entertainment businesses (20^th Century Fox), and is actually a partner with Disney in the popular online video site Hulu.