Walt Disney Co. has been the Magic Kingdom for media investors lately. It may be time for a reality check.While rivals CBS Corp., Viacom Inc., Time Warner Inc. and News Corp. (parent of The Wall Street Journal) have lost 25%-50% of their value since January, Disney is down a gentle 7%. The stock is trading at roughly 12 times fiscal 2009 earnings, while most of its peers are trading between about seven and nine.
Disney deserves to trade at a premium, given its mix of assets -- which include cable network ESPN -- and strong management. But amid fears of a recession, the size of the premium looks hard to justify.
Helping support Disney stock so far has been its lower exposure to advertising than its rivals; 20% of Disney revenues come from ads compared with as high as 70% for a rival like CBS. But close to 60% of Disney's revenue comes from economically sensitive businesses, like theme parks and consumer products.
Theme parks, which account for about 30% of Disney's revenue, have historically seen attendance dips in recessions. Disney hopes to overcome that with cheaper deals for families. Recent quarters have been boosted by foreign visitors attracted by the cheap dollar; the dollar's recent rally could choke off that source of growth.
As for advertising, Disney acknowledged in late July it was seeing softness in auto and other categories at its TV outlets.
Disney's investors have kept the faith. Coming months will put that to the test.
By: Martin Peers
Wall Street Journal; October 8, 2008
