Disney Soars With The Avengers

Image representing The Walt Disney Company as ...

Large multinational companies have been some of this year’s best stock performers. In today’s uncertain economic environment, investors have rewarded companies with well-recognized brand names, solid balance sheets and strong management teams. Walt Disney (NYSE: DIS) is a prime example, and is a stock that we are looking to add to our portfolio.

Founded in 1923 by Walt Disney and his brother Roy, the Disney Brothers Studio, as it was then known, began by releasing a number of cartoons that quickly gained in popularity.

In 1928, Mickey Mouse was introduced in the film Steamboat Willie, setting the foundation for Disney’s enduring connection with children. Walt Disney himself received numerous awards and recognition along the way, while creating one of the largest film studios in the world. Today, Disney is a diversified company with multiple business units, including Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Disney Interactive.

Its Media business consists of popular television networks, such as ESPN, Disney Channel, ABC Family, A&E/Lifetime and SOAPnet. In its most recent quarter, these networks contributed a combined 46 per cent of Disney’s total revenues.

The company also produces original content for television shows on its ABC channel, including Grey’s Anatomy, Private Practice and Criminal Minds. ESPN continues to be the main growth driver in this segment, as the network’s attractive audience demographics and strong ratings enable it to charge the highest fees of any cable channel.

Disney’s Parks and Resorts business features world-renowned tourist attractions: Disney World and Disneyland. The division has performed well, as revenue grew by nine per cent year over year in the company’s latest quarter because of an increase in traffic and strong pricing power.

The company has also been successful in launching these vacation destinations outside the U.S. through international partnerships and licence agreements in Hong Kong, Paris and Tokyo, with a new project, Shanghai Disneyland, slated to open in 2015.

Revenues from its international destinations represented less than 20 per cent of the total Parks and Resorts segment, leaving significant room for growth.

Disney’s acquisitions of Marvel Entertainment for $4.2 billion in 2009 and Pixar for $7.5 billion in 2006 have also made the company a formidable competitor in Hollywood. Marvel’s film The Avengers has already generated nearly $1.5 billion in sales, making it the third-highest-grossing movie in history. In its most recent quarter, operating income from the Studio Entertainment division increased 540 per cent year-over-year, and we expect future movie releases to help drive significant earnings growth at the company.

Marvel and Pixar have given Disney additional content to leverage across its various business units, while contributing valuable technology that has revolutionized computer animation. The company’s proven ability to build long-lasting franchises will also benefit its Consumer Products and Interactive divisions, as it sells more toys, apparel and consumer electronics based on these newly acquired characters.

Although Disney’s success has elevated the company to our watch list, we are not buyers at current levels. At its recent close of $49.47, the stock is trading near all-time highs. Disney’s shares are up 32 per cent year-to-date, an impressive feat considering the company’s nearly $90-billion market value, while the S&P 500 has returned only 11 per cent over the same period.

Disney’s outperformance has been even more pronounced this summer, as it has gained 13 per cent vs. a return of only one per cent for the S&P 500. Although Disney deserves a premium valuation, we believe the stock has moved too far, too fast.

The company’s leading market position and strong execution have caught our attention. Nevertheless, we are price conscious and are not willing to chase any stock after such a sizable advance.

With many valuable assets, we believe Disney is well positioned for continued long-term growth, but we will wait patiently for a pullback in its share price before initiating a position. 

Ian Shaffer is a portfolio manager and the president and CEO of Galliant Capital Management,

R

The Dark Knight (Batman ) Release – IMAX RISES ! – Beats Harry Potter

The Dark Knight Rises

The Dark Knight Rises (Photo credit: Wikipedia)

This is a self indulgent post as I saw the new movie with my daughter – a birthday gift for me. ( It is terrific.)

- as a friend of mine often began a statement of the obvious   ”  Even Stevie Wonder could see ”   – this box office success will bolster IMAX.

IMAX* (IMX : TSX : $23.46)
IMAX* (IMAX : NYSE : US$22.89)
The Dark Knight Rises posts $23.8 million on IMAX during opening weekend: IMAX released their  Canadian booffice estimates for the Dark Knight Rises and the numbers were very impressive and in an analyst’s   opinion could not have been any higher given the screen count.

Domestically the title generated $19 million in IMAX off 332 screens. This is 11.8% share of the total domestic gross for the title. The opening weekend (domestic) PSA (per screen average) was $57,200. This is ahead of even The Avengers opening weekend PSA of $56,000. The Avengers
holds the record for the biggest opening weekend in history overall. Further, last year’s Harry Potter finale generated a PSA of
$55,500 domestically on IMAX. On the international front, the title generated $4.8 million in IMAX for a global total of $23.8
million.

Internationally, it was released on 64 screens with another 89 due to open over the next several weeks. The international PSA was $75,000 well ahead of the $67,000 posted during the opening weekend of the Harry Potter finale.  Bay Street expects $130 million from The Dark Knight Rises for the full run in IMAX. Galappatthige is at the high end of expectations in this respect (Street estimates are $70-130 million).

The Avengers Rescue IMAX

Avengers (comics)

Avengers (comics) (Photo credit: Wikipedia)

May 8 

Holy Box Office Batman  !

IMAX* (IMX : TSX : $24.51), Net Change: 0.68, % Change: 2.85%, Volume: 50,735

 

IMAX* (IMAX : NYSE : US$24.70), Net Change: 0.79, % Change: 3.30%, Volume: 1,613,280

 

Cineplex* (CGX : TSX : $31.21), Net Change: 0.34, % Change: 1.10%, Volume: 128,609

 

Walt Disney (DIS : NYSE : US$43.82), Net Change: 0.89, % Change: 2.07%, Volume: 11,757,699

 

…to fight the foes no single superhero could withstand…on that day, The Avengers were born.

 

 

It takes a superhero to post gains in this market! IMAX was green in a sea of red after The Avengers smashed into the U.S. and Canadian theatres. It was a massive weekend at the box office, with Walt Disney’s Marvel Studios’ The Avengers posting the biggest opening weekend in history at $200 million in domestic box, beating the previous record of $169 million set by the Harry Potter finale.

Of that $200 million, IMAX did $15 million in the domestic market, or 8% of the total domestic box office for the title. While this is lower than the 10-12% IMAX has historically seen for these kinds on titles, the lower share is due to the massive $200 million base. Essentially even if every single seat in every single showing on IMAX was full Friday-Sunday, the share could not have got higher than 9%. Internationally, Avengers did another $6 million on IMAX for a total of $21 million for the weekend.

IMAX global box office was up 95% y/y in Q1 and ~4x in April – and now May has started out very strong. The film slate for the rest of the summer also looks very impressive, with Men In Black 3, Prometheus, The Amazing Spider-Man, Dark Knight Rises to follow

 Cineplex should also benefit from the impressive box office numbers. 2012 is proving to be a very strong year at the box office, with the Canadian box office up 12.5% in Q1 and 15% in April, according to the latest data from the Motion Picture Theatre Association of Canada (MPTAC). 

Prefers IMAX over Cineplex in this strong box office environment, given that these names are more leveraged to the box office upswing. Moreover, he believes Cineplex is currently fully valued as it has been trading at a much larger premium against its U.S. peers

 

 

Disney Blames ” John Carter” / Results On The Last Guy

Image representing The Walt Disney Company as ...

Image via CrunchBase

Walt Disney (DIS : NYSE : US$43.24)

March 21

Hollywood Eats Its CEOs

Disney’s box office flop “John Carter” is expected to drive its studio segment into the red in the second quarter, as the big-budget film has failed to gain traction and justify its $250 million price tag.

Management said it expects its studio segment to post an operating loss to range $80-120 million in the quarter due to a $200-million loss from “John Carter”. Analysts were expecting the film to lose $120-160 million. Since its release earlier this month, the film has been beaten by “Dr. Suess’ The Lorax” and the remake of “21 Jump Street.”

The road won’t get any easier with “The Hunger Games” hitting theatres this Friday, in what is expected to be the first $100-million opening of the year.  ( See our earlier market letter on Scholastic / Hunger Games )

Next Blockbuster ?

While the film is a bust by all accounts, the studio still has “The Avengers” and “Brave” being released later this year to help absorb the loss. Additionally, many analysts believe that the loss was largely expected and that Disney’s other larger business lines, such as cable television, will reduce the impact of the film to the company’s bottom line. “John Carter” was the last big-budget film designed under former Studio Chair Dick Cook before his departure in 2009. Since then, Disney has focused on producing a smaller number of more reasonably priced films.

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