MORNING BID – Once Upon a Dream

August 5, 2014

Disney is expected to report third-quarter results after market close and is likely to beat average analyst estimates, according to StarMine. The media company’s results could get a boost from “Maleficent”, its revisionist take on “Sleeping Beauty” featuring Angelina Jolie, but the company’s prowess doesn’t end there, not with “Captain America: Winter Soldier” also a box-office champ in 2014 – which was also released during its most recent reporting period.

The studio budget for Maleficent was said to be somewhere around $180 million, so it’s not as if this was a cheap one, but consider that it posted worldwide grosses of $727 million, ranking it third for 2014, with the fourth-place film being Captain America (which cost $170 million), and also came through through Disney’s Buena Vista studios, per BoxOfficeMojo data.

The lion’s share of the top-grossing movies in 2014 count anywhere from 60 to 70 percent of their grosses from overseas (with Paramount’s unkillable Transformers franchise getting three-quarters of its dollars coming out of international markets), and just five movies this year have grossed more than $700 million total worldwide, with Disney responsible for two of them. Considering its ownership of the surefire-hit Star Wars coming in 2015 and whatever else the studio can squeeze out of the Marvel franchises (another Thor movie coming, another Avengers movie on the way) it makes some sense to see that the stock is trading at a level a bit outside of the rest of the market in terms of its relative valuation.

Intriguingly, looking at a Starmine screen of other media companies, the stock actually trades at a discount to its peers CBS, Time Warner and Twenty-First Century Fox when it comes to its price-to-forward 12-month earnings (on average, a discount of about 10 percent) and even more so when considering its price-to-forward cash flow levels as well (a discount of about 34 percent). That’s even as the stock has been the Dow’s best performer in terms of price change over the last five years with a 227 percent return, outdoing all of its rivals in the 30-stock average (it’s in the top 50 in the S&P 500, trailing the typical biotech and internet retailers as one might expect), and steadily increasing profit margins in the last decade from high-single digits to low-to-mid teens.

Investors – and companies – are increasingly trying to pay for content, hence the 21st Century Fox pursuit of Time Warner (really, Game of Thrones, let’s not mince words) and a Disney riding high on the success of the Marvel tentpole productions and about to double-down on the Star Wars franchise by getting the band back together along with a bunch of interesting new cast members has a lot of room to run (and we haven’t even mentioned whatever princess movie it’ll have on the way too, which includes a live-action Cinderella, along with a long-awaited Finding Nemo sequel). So, uh, Hakuna Matata?

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