Despite Recent Troubles, Plan Bodes Well for Company’s Future : Expansion: Analysts generally applaud Disney’s ambitious resort project in Anaheim. Some say it is time for company to grow once more.
Walt Disney Co.’s decision to launch a $3-billion resort project in Anaheim comes at a time when revenue from its existing theme parks is down and the company is a target of sniping by critics for missteps in its film and music businesses.
But analysts generally applauded Thursday’s announcement, saying it shows that Disney is looking beyond the current recession to a day when visitors again will flock to its attractions and the company may regain its former perch as Wall Street’s darling.
“If the question is, do you pursue this given the state of the recession, my feeling is the park (Disneyland) was definitely in need of expansion, and it was time to do it,” said Paul Marsh of Kemper Securities in Los Angeles.
“Disney may be a better growth company now than it was seven years ago,” added analyst Jeffrey Logsdon of Seidler Amdec Securities in Los Angeles.
Logsdon’s rationale is that Disney has fueled its growth in recent years largely by raising prices at its theme parks and cashing in on such assets as its rich film library. For example, “Fantasia,” the most recent videotape release from Disney’s storehouse of animated classics, may bring in $200 million, Logsdon estimated.
But the library isn’t inexhaustible, and Disney’s ability to push prices still higher appears limited, Logsdon said. So its strategy of expanding its theme parks and trying to capture more of the hotel, parking and food business that its attractions generate is a sound one, he figures.
Besides, as Logsdon and other analysts observed, the best time to build is in a downturn, because that’s when investment money is cheapest and the most generous concessions can be wrung from municipalities anxious for jobs and tax revenue.
Investors may have seen the Anaheim announcement the same way. Disney’s stock rose $2 a share to $106.375 in trading on the New York Stock Exchange.
It was a bright spot for the Burbank-based company in a year that has seen some unaccustomed setbacks.
Due mainly to drops in attendance at its Florida and California theme parks, Disney reported a 23% profit decline for its fiscal year ended Sept. 30, as compared to the year before.
Disney took some lumps last month when a memo written by the head of its struggling music company, Hollywood Records, surfaced. The memo, which criticized competitors and even some of the company’s own artists, drew attacks from within the industry.
The memo added to a string of public relations problems. The company got a black eye for aggressive legal stances against singer Peggy Lee and the estate of the late Muppets creator, Jim Henson, along with its stringent restrictions on theme-park employees’ appearance.
At Disney’s film units, meanwhile, morale was said to be slumping because of a strict cost-containment program and the disappointing results of some movies. However, much of that may be solved by Disney’s latest release, “Beauty and the Beast,” hailed as an instant classic and a box-office champ.
“Whatever the company is going through now is, we assume, temporary,” Peter Rummell, president of Disney Development Co., said at a press conference at the Los Angeles Hilton on Thursday. “We’re making decisions for 20 and 30 years down the line.”
Disney executives have not said how they plan to finance the Anaheim project, but analysts said it will not be a strain. With cash of $1.8 billion and debt of $2 billion, the company has plenty of untapped borrowing capacity. Logsdon speculated that Disney might issue new securities to help pay for the project and might enter into partnerships with other companies to build the hotels or other components of the resort.
