Saturday, November 8, 2014

Disney's Earnings Commentary {And how I plan to give Disney stock to the children in my family instead of gifts}

 

I purchased shares of Disney the very beginning of this year—mid January to be exact. If I could do just two things differently I would have:
1. trusted my very initial instincts {and research} and would have bought shares a lot sooner than I did.
2. I would have started a larger position.
Regardless of not getting the shares “cheaper” by buying sooner or not making this stock 50% of my portfolio; one thing I am grateful for is that I made the decision to buy shares in this phenomenal company. The stock is up 21.6% since I purchased. I encourage you to take a look, do your own research, and decide for yourself whether this company can benefit your investment portfolio.
Original Investment Thesis:
Strong brand, strong earnings, very minimal competition. As a matter of fact, one of the factors that attracted me so much towards Disney as an investor is the lack of direct competition. Before I made my initial investment in the company, I thought long and hard about who or what exactly competes with a company like Disney and I couldn’t come up with anything concise. Sure- it can be argued, for example, that Disney competes in the entertainment category and that a “competition” may be perhaps a family deciding to take a vacation to a Caribbean island, take a cruise, go visit grandma, or do nothing at all instead of going to a Disney resort. Or, if we are talking about television & sports (Disney owns ESPN) it can be argued that sports fanatics can choose another venue for their watching. However, I am not so sure how easy that would be. I don’t follow sports much but I can only deduct that ESPN probably has exclusive contracts that give it the sole right to show certain sports or events, etc. Hence, not sure there is an ‘immediate substitute’ for that.
ESPN is the most profitable network for Disney but lets not forget the company owns many other channels. Here is an overview:
 
My conclusion after a lot of research was that Disney, like other solid companies in my portfolio, is in a league of its own and it would take a lot of work for a start up to even come close to Disney's status. You can read my full investment thesis for Disney on this post which I wrote back in March shortly after I purchased shares.

Highlights of the earnings:
The best part from reading the earnings report and press release was a quote from Disney CEO  Robert A. Iger: “Our results for fiscal 2014 were the highest in the company’s history, making our fourth consecutive year of record performance”. I think is pretty incredible that a company as old as Disney is still growing and reaching record highs in financial performance.
In summary…
  • Revenues for full year 2014 increase 8% (in comparison to full year 2013) reaching a record high of $48.8 billion.
  • Net income increased 22% (compared to 2013 results) reaching $7.5 billion, another record high in this category.
  • Earnings per share for the full year increased 26% to a record $4.26 per share compares to $3.38 in 2013.
  • Cash provided by operations up 3% to $9.7 billion in comparison to last year’s $9.4 billion
Read full press release here.

{I encourage you to read the full report. Is not a very long read and it provides a quick summary on how each segment within the company contributted to a year of great results}.

My Two Cents {Plan I have in mind for my niece & nephew involving DIS shares}
Disney is not a company that was born yesterday. It has been around for nearly a century and this company is a prime example of business that has been able to remain relevant and highly acclaimed for generations. Disney was around when my grandparents were growing up, when my parents were growing up, obviously as I grew up and will likely be there for my kids and the kids of my kids as well. I don’t know exactly how they do it but whatever it is, keep it going!
One idea I’ve had for my niece and nephews is to start a position for them on Disney stock and add a share or two every year. Instead of buying gifts I would add on to their position each time they have a birthday and as a Christmas gift. I would make sure the shares are involved in DRIPS so that each time dividends are paid out, the money goes back to buying more shares creating a mini money machine for them as they grow up.
They may hate me now wondering why they are not receiving any toys or articles of clothing from me but they’ll thank me 20 years from now when their investment has grown significantly. My niece is only 2 years old and my nephew is 7. If Disney continues its track record, I wonder how far they can go in the course of two decades when they are 22 and 27, respectivery. The stock price is a bit high now. I’d like to wait for a nice pullback before starting said position. However, who knows what will happen and whether I’ll see any major pull backs. So, we’ll see what I decide to do.
Oh! And one more thing— The stock also pays dividends with an annual yield of 0.90% (or .86 cents per share).
Tell me, What are your thoughts on Disney? Ever thought of starting a position for your kids or the kids in your family? Do you think this company can be disrupted by an up and coming start up or any other kind of competition? Would love to hear your thoughts.
*I am LONG on disney stock.