Buoyed by Growth in All Businesses, Disney Stock Climbs Steadily : Entertainment: After hovering in the low 40s, the share price is expected to rise above $50. Analysts predict first-quarter earnings will be up 15%.
Walt Disney Co. stock, after hovering for months in the low 40s, has been climbing steadily, buoyed by growth in all its businesses and expectations of strong first quarter results.
“Disney has real potential to surprise in the first quarter,” said Merrill Lynch entertainment analyst Jessica Reif.
Analysts are estimating a gain of about 15% in first-quarter earnings, according to Zack’s Investment Research.
Reif agrees with that forecast but said her first-quarter estimate could be too low if Disney’s theme parks show improved results.
“We’re looking for flattish theme park results. If the December (holiday) period was strong, and my gut is it was, there’s some room here for an upside surprise in operating earnings,” Reif said.
Although theme parks have become an increasingly smaller percentage of Disney’s revenues and earnings, their performance still plays a lead role in the stock price.
“Wall Street has traditionally looked at theme park attendance as their security blanket and as the measurement of their performance overall,” said Jeff Logsdon, a managing director of Seidler Cos., a Los Angeles-based investment firm.
Theme parks now account for about one-third of Disney’s earnings, down from 75% in earlier years.
Merrill Lynch’s Reif said the parks will continue to decline as a percentage of the total business but will not be ignored on Wall Street. “It’s important to the psychology of the market that it’s not a bottomless pit,” she said.
In the meantime, analysts said their outlook for continued growth in 1995 is largely based on Disney’s film operations.
“We think film operating profit will grow,” Reif said. “That’s the driver for the earnings. . . . I have it growing 30% in fiscal ’95, 20% thereafter.”
The filmed entertainment segment in fiscal 1994 had revenue of $4.79 billion and operating profit of $856.1 million. Disney’s total revenue in 1994 was $10.06 billion, including $3.46 billion from theme parks and resorts and $1.80 billion from consumer products.
Disney stock closed at $47.25 Wednesday, down just 37.5 cents for the session and still close to its 52-week high of $48.625. Its year low is $37.75.
“I think the stock is headed toward $50 over the next month or so. It may be there by next week,” Logsdon said.
Raymond Katz, an entertainment analyst with Bear Stearns, said he has a target price for the stock of $52 a share by mid-1995 and $60 by mid-1996.
The steady uptick in the stock’s price over the past two months is also being supported by Disney’s scheduled meeting with analysts Jan. 26, because it bodes well for strong first-quarter results. “Disney typically doesn’t schedule analysts meetings when the news is mediocre,” one source said.
Disney’s stock began climbing in November after it released 1994 fourth-quarter results slightly ahead of expectations. The stock has also been helped by the easing of the crisis at EuroDisney, the struggling theme park outside Paris that had to go through a refinancing as losses mounted last year.
“I suspect everyone started jumping on the bandwagon when they saw Florida picking up,” Seidler’s Logsdon said, noting the performance of Walt Disney World in Orlando.