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Can Walt Disney Co (DIS) Stock Continue Its Impressive Rally?

Growing Revenues And Strong Balance Sheet

Walt Disney Co (NYSE:DIS) has been consistently growing its revenues and earnings and generating strong cash flows. In spite of the headwinds faced by the media segment, Disney was able to report a revenue growth of 6% in FY 2016, mainly due to the strong performance of studios. Net income grew by 12% while EPS grew by 16% in FY 2016. The strong growth in EPS was facilitated by a variety of factors, including share buybacks, the decline in operating expenses as a percentage of sales and lower tax rate. During FY 2016, the effective tax rate declined from 36.2% to 34.2%, contributing 2% to EPS growth. It is worthwhile to note that, in spite of the decline, Disney’s tax rate remains very high, and is likely to be one of the biggest beneficiaries of the proposed tax restructuring of the Donald Trump administration. Disney’s earnings could rise up by as much as 10%.

Another significant factor which contributed to growth in EPS was Disney’s share buyback program. Disney bought back $7.5 billion of stocks last year, which resulted in an EPS boost of more than 4%. Disney is scheduled to continue its stock buyback program in FY 2017, which will continue to drive its EPS growth. In addition to $7.5 billion of common stock repurchases, Disney also paid $2.3 billion in dividends to its shareholders.

Disney can continue to richly reward its shareholders, due to its strong operating cash flows. In FY 2016, Disney generated $13.21 billion in cash from operations, almost 30% growth from 2015. Even the long-term growth in cash flow has remained strong. Operating cash flows have grown from $7.96 billion in 2012 to $13.21 billion in 2016, a CAGR of 13.5%. And with the opening of Shanghai Disneyland, the cash flows are likely to only improve this year.

The strong fundamentals, the opening of Shanghai Disneyland and a strong lineup of movies in 2018 have earned Disney stock many rating upgrades, including from Piper Jaffray’s Stan Meyers who in a recent report said that:

“We are revisiting Disney’s long-term model, raising estimates and our price target to $130 from $115. Based on our analysis of the upcoming projects across Parks and Resorts, the future film slate at the Disney Studio and its impact on Consumer Products, we are raising our average annual growth expectations by 100bps over the next four years.” 

While Walt Disney Co (NYSE:DIS) remains a good long-term bet, the stock may face headwinds in the near term due to the continuing concerns around ESPN franchise and downbeat expectations from 2017. The stock may face near-term corrections. Long-term investors must use any dips to buy DIS stock.

The article Can Walt Disney Co (DIS) Stock Continue Its Impressive Rally? originally appeared on Watch our analysis video on DIS (3). – Watch, Analyze, Invest. Why spend hours putting together numbers you can get in minutes, in one simple video? Our ‘Robo Advisor’ videos give you every number that matters, in 1 minute. Find insightful articles with ideas on investing, top stock picks that outperform the markets, personalized portfolio analysis videos and a whole lot more. – Your Friend On Wall Street.

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