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Disney to Continue Share Repurchase Program and Increase Capex

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Jan. 29 2016, Updated 3:15 p.m. ET

Barclays downgrades Disney

The Walt Disney Company (DIS) is expected to announce its fiscal 1Q16 earnings on February 9, 2016. According to consensus Wall Street analysts’ estimates, Disney is expected to have EPS (earnings per share) of $1.44 and revenues of $14.7 billion in fiscal 1Q16.

As the chart below indicates, the company’s stock price has fallen 10.8% in its year-to-date performance, even after the stupendous success of its Star Wars movie. On January 15, 2016, Broadcasting & Cable reported that Barclays had downgraded Disney to “underweight” and revised its estimated target price from $98 to $89. One of the reasons for downgrading the stock was subscriber losses for Disney’s ESPN.

According to the Broadcasting & Cable report, Barclays analyst Kannan Venkateshwar stated, “Given ESPN’s fixed cost structure and variable revenue model, subscriber losses are likely to have a disproportionate impact on the business model.”

Now let’s look at the outlook for Disney in 2016.

[marketrealist-chart id=1007709]

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Share repurchase

Disney has repurchased about $25 billion worth of its stock at an average share price of $58 per share in the past five years. The company intends to continue its share buyback program in 2016 and intends to buy back $6–$8 billion of its stock during fiscal 2016.

Capex

Disney is building a number of Disney Parks and Resorts in this business segment. As a result, it expects total capital expenditure (or capex) in fiscal 2016 to exceed its capex in fiscal 2015 by $800 million.

Disney makes up 0.87% of the SPDR S&P 500 ETF (SPY). For an investor interested in exposure to the computers sector, SPY holds 3.7% of the stock. SPY also holds 3.1% of Apple (AAPL), 2.5% of Microsoft (MSFT), and 1.6% of General Electric (GE).

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