The largest media company in the world, the Walt Disney Company (NYSE: DIS) generated over $40 billion in revenues in 2011, while growing year-over-year earnings by 24 percent to $2.52. In the first quarter of this year, the company beat the Street’s EPS estimates, reporting an EPS of $0.80, boosted by increased cable network success and better-than-expected revenues from Disney theme parks and resorts. Over the past week, DIS has been in the spotlight due to its release of “The Avengers”, which has already generated over $1 billion in revenues worldwide. This success comes on the heels of the company’s Q2 earnings release, which also exceeded expectations.
In a recent interview, Disney CEO Robert Iger boasted that DIS’s outlook for the rest of 2012 continues to look bright, citing an ever-improving focus on the company’s core brands: Disney, Pixar, Marvel, ESPN, and ABC. Intriguingly, Iger has also recently been quoted here as saying that “we continue to be buyers of our stock,” though SEC filings tell a drastically different story. Aside from Board Chairman E. John Pepper, who purchased $166,490 worth of DIS stock over the past year, all of Disney’s insiders have been selling. In fact, Iger and five other Disney execs sold a combined 2.03 million shares of DIS last week for a total value of $91.5 million. Intriguingly, Iger himself accounted for almost $80 million worth of these transactions. While these numbers seem staggering, they account for only a fraction of a percent of DIS’s market cap, which currently rests over $80 billion. Additionally, it seems that some – not all – of the transactions were a result of profit taking, as a few insiders sold DIS immediately after stock options were exercised. Below are summaries of the selling behavior of Disney’s four most active insiders.
A. Robert Iger: Iger is the current CEO of Disney, and has been since 2005. He has been praised for his leadership during the company’s acquisitions of Pixar and Marvel, two brands that have the rare ability to sell products in the movie theatre and in the merchandising space. Over the past year, Iger has sold 2.4 million shares of DIS for a total value of $107.09 million. The majority of this selling activity occurred on May 10th, as mentioned above, and the remaining $27.09 million of these transactions occurred in January ’12, November ’11, and October ’11. These particular shares were sold at prices between $36 and $38 a share, around 20 percent less than what DIS is currently trading for – Iger missed out on roughly a $5.4 million gain by selling them early. Regarding Iger’s recent $80 million sale, he sold at a share price of $45, though this transaction was made after the CEO exercised stock options to buy DIS at a hefty discount. All in all, Iger’s options allowed him to buy DIS around $31 a share, letting him make a cool 45 percent profit. It is intriguing, however, that Iger did not hold on to these shares longer, as Disney may look to see more gains in the future.
Brent Woodford: A Special VP of Planning & Control at Disney, Woodford is responsible for planning the company’s operating budget, cash flow allocations, capital projects, as well as financial reporting to internal and external users. Over the past year, Disney has seen its operating income increase by almost 20 percent to $7.7 billion, while operating cash flows were boosted by 6.3 percent to almost $7 billion. Over this same time, Woodford has sold 32,500 shares of DIS stock for a value of over $1.3 million, with his largest transaction occurring on May 9th of last week, when he sold 10,000 shares at a price of $45.25 a share.
Jayne Mary Parker: Parker is Executive VP and Chief HR Officer at Disney, and has been with the company since 2003. Since the start of 2011, Parker has sold 28,300 shares of DIS. Her earliest and largest sale during this time period was last December, where she sold over 12,000 shares for a price of $37 each. After this transaction, DIS gained 16 percent before Parker sold another 9,100 shares at $43 this March. Contrary to most of her peers, her sale last week of 6,400 shares at $45 represented the smallest in her portfolio over the past year. It does seem that Parker’s last transaction was a result of her exercising stock options to buy DIS at a price of $24.80, marking a gain of 80 percent.
A. Kevin Mayer: Mayer, the Executive VP of Corporate Strategy, has exercised stock options over the past year to sell a total of 121,357 shares at an average price of $43 a share. These transactions allowed Mayer to purchase DIS stock at discounts of over 50 percent over this time period, as he promptly sold them back for a total profit of $1.6 million.
From a valuation standpoint, there are no alarming bearish signals on DIS stock. Its earnings multiple is 16.2X, which is slightly above the industry average P/E (16.0X) but below its own 10-year historical average P/E (19.25X). Additionally, DIS’s P/E is middle-of-the-road compared to competitors like News Corp (NASDAQ: NWSA) at 14.1X, Time Warner (NYSE: TWX) at 13.1X, Discovery Communications (NASDAQ: DISCA) at 19.3X, and Scripps Networks Interactive (NYSE: SNI) at 17.8X. Factoring growth into the equation, DIS’s Price-Earnings-Growth ratio is 1.0, which indicates that it is fairly valued, though NWSA, TWX and DISCA all have PEGs below this number. Additionally, it is mentioned above that Disney’s cash flows grew by 6.3 percent last year. It seems that investors are valuing this cash fairly, as DIS’s P/CF ratio (11.2X) is slightly above the industry average (10.9X), but below its own 10-year historical average (11.4X).
Perhaps the most disconcerting fact about this selling behavior lies with Disney’s CEO, Robert Iger. It is interesting that it has come at a time when he has stated publicly that he fully expects the company to exceed earnings expectations in the next two quarters, though corporate PDA’s are obviously one of the requirements of being a CEO. On the whole, we still like Disney due to its strong top and bottom line growth, fair valuation, and international appeal. Some of the most successful hedge funds also love this stock, as Chris Hohn, Mason Hawkins, and Tom Gayner – three managers with at least $1.8 billion in assets under management – hold sizable stakes of DIS in their portfolios.