Disney’s impressive run
Disney’s (DIS) 44% return in 2013 certainly has investors interested: those who have benefited from the run-up are questioning whether they should sell, while others who missed the move contemplate whether they should jump in now. The preceding segments addressed some of the value drivers for the company, so in this piece, we can step back and examine the value of the whole enterprise. Disney is a member of the PowerShares Dynamic Media Portfolio ETF (PBS), which seeks to provide exposure to an index of media stocks.
In Part 3 of this series, we used a comparative analysis to determine the value of the company’s Parks & Resorts division. For the remaining media properties, we can use the same approach by comparing results to pure-play media peers like CBS (CBS), Viacom (VIAB), and Time Warner (TWX).
The chart above displays the historical valuations of the three peers using EV/EBITDA. The averages range from 8.5x to 9.4x, a pretty tight range. Since the business models of these companies are fairly similar to Disney’s combined media divisions, using the average valuation multiple of all three, 9.0x, is most appropriate. In the fiscal year ending September 30, 2013, Disney earned $9.1 billion of EBITDA, excluding the Parks & Resorts segment. Applying the average multiple of 9.0x results in a value of nearly $82 billion for the media segments. Adding the $27 billion value for the Parks & Resorts segment calculated in Part 3 of this series results in a total valuation of $109 billion for all of Disney.
With the company trading at an enterprise value of $137 billion today, investors have to question if the stock isn’t overvalued at this point. To sustain these valuations, Disney would need to produce a significant improvement in earnings to justify the current enterprise value.