Key Valuation Metrics for Disney



Valuation metrics

In this part of the series, we’ll look at some key metrics investors can use to compare values of media companies. We’ll specifically look at media valuation multiples. Some of the usual valuation multiples for companies are PE (price-to-earnings), EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization), PCF (price-to-cash flows), and PFCF (price-to-free-cash-flows).

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The price-based multiples take into account value from a shareholder’s perspective. The EV-based multiples help investors understand the value of the company from the point of view of a company’s holders of sources of capital. These are forward multiples based on expected values of the denominator after a year.

Disney overvalued at forward EV-to-EBITDA

As the chart above indicates, The Walt Disney Company (DIS) has a high forward EV-to-EBITDA ratio of 9.77x among its peers. Its peers include 21st Century Fox (FOXA), Time Warner (TWX), Viacom (VIAB), and CBS (CBS), which have forward EV-to-EBITDA ratios of 9.5x, 8.4x, 6.8x, and 8.9x, respectively. It indicates that Disney is slightly overvalued among its peers.

When it comes to the forward PE ratio, Disney is trading at a multiple of 6.8x and seems to be undervalued among its peers.

Disney’s value proposition

Disney stands out from its competitors in the media industry because of its vast IP (intellectual property). The company monetizes these assets successfully across its segments. It accomplishes this through the creation of content that utilizes its intellectual property by retailing merchandise, creating console games, and adding attractions at its theme parks that showcase its characters.

There’s no dearth of buyers for Disney’s content across multiple platforms. Regarding Disney’s ESPN, the company is also trying to broaden the reach of the sports network by distributing it across multiple platforms in the US as well as in international markets.

Disney makes up 0.85% of the SPDR S&P 500 ETF (SPY). For an investor interested in the information technology sector, SPY holds 3.9% of the sector.


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