The Walt Disney Company (DIS): Time to Revisit Valuation

Analysts’ average estimate for 12.4% EPS growth per annum for the next five years seems to reflect reasonably realistic assumptions for this stalwart. Applying this to the company’s current levels of free cash flow, with expectations for this growth rate to inevitably slow over time, a likely scenario for Disney’s free cash flow growth rates over the next 10 years, could look like this:

Using a 10% discount rate, a discounted cash flow valuation suggests that Disney shares are fairly valued at $68.50. In other words, at a price of about $63, the stock has a nearly 9% margin of safety.

Though a 9% margin of safety isn’t substantial, it’s not bad for a well-diversified media powerhouse with a handful of influential franchises that will likely contribute annuity, like operating income, for years to come.

Can I count on a discounted cash flow valuation?

No, but it’s a starting point that gives us an objective look at the stock. For long-term investors, Disney stock is priced conservatively enough to at least earn a spot on their watchlist and possibly merit a deeper look. But long term is the key word here — especially given the business’s reliance on consumers. Another recession could send investors on a scary roller-coaster ride.

The article Disney Stock: Time to Revisit Valuation originally appeared on Fool.com and is written by Daniel Sparks.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Walt Disney (NYSE:DIS).

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