Bloomsburg Investment Group Equity Analysis (DIS)

Analyst: Bryce Wandell Class of 2021, Jacob Beitz Class of 2021 Bloomsburg Investment Group Opinion: The group believes that Disney (DIS) is a strong hold for the following reasons. With the recent acquisition of , Disney acquired a vast amount of new content that it can utilize to increase its already dominant position in the film industry, as well as give its brands more longevity in box offices. Next, we believe that the future of film and entertainment is streaming. Disney has adapted to the change in the market from cable to streaming with the combination of Disney+, ESPN+, and Hulu. These variables, accompanied by increasing dividends and strong financial performance make Disney a strong hold for our portfolio.

Corporate Summary: Corporate Details: Name The Walt Disney Co The Walt Disney Company, founded in 1923, is a Ticker DIS worldwide entertainment company. The Company Domicile United States operates in four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Sector Consumer Cyclical Products & Interactive Media. The media networks Industry Media ­ Diversified segment includes cable and broadcast television networks, Exchange NEW YORK STOCK EXCHANGE, INC. television production and distribution operations, Last Close 129.90 domestic television stations, and radio networks and Price 52 Wk High 132.70 stations. The Company's Walt Disney Imagineering unit designs and develops new theme park concepts and Price 52 Wk Low 97.68 attractions, as well as resort properties. The studio Latest Dividend 0.88 entertainment segment produces and acquires live-action Dividend Yield % TTM 1.32 and animated motion pictures, direct-to-video content, Beta 5 Yr (Mo­End) 0.92 musical recordings and live stage plays. The Company also Avg Daily Volume (3 Mo) 12,720,439.32 develops and publishes games (primarily for mobile platforms), books, magazines, -and comic books. Shares Outstanding (mil) 1,797.62 Number of Analysts 8

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Source: Morningstar Direct The Walt Disney Co DIS

Financial Summary, Year End 2018 (in millions) Financial Highlights Market Capitaliza�on 233,511.02 - Revenues up 8% yoy Total Revenue 59,434.00 Gross Profit 26,708.00 Opera�ng Income 14,837.00 - Disney 2018 annual EPS was $8.36, a Net Income Cont Ops 13,066.00 46.92% increase from last year. Net Income 12,598.00 Current Assets 16,825.00 - Net Income increased by 39.5% in the Cash 4,150.00 Total Assets 98,598.00 last year Current Liabili�es 17,860.00 Long­term Liabili�es 27,906.00 - Tax reduction from 32.1% to 11.3% Total Liabili�es Total Equity 48,773.00 - Dividend increased 7.69% yoy, and Opera�ng Cash Flow 14,295.00 Inves�ng Cash Flow ­5,336.00 since the last annual report in September Financing Cash Flow ­8,843.00 2018 has increased another 4.76% Change In Cash 116.00 EBITDA 18,422.00 Enterprise Value 249,721.02 Capital Expenditure ­4,465.00 P/E Ra�o Forward 18.48 PEG Ra�o 2.75 Dividend Yield % TTM 1.32

Investment Growth

Time Period: 4/17/2016 to 4/16/2019

50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 7/2016 10/2016 1/2017 4/2017 7/2017 10/2017 1/2018 4/2018 7/2018 10/2018 1/2019 4/2019

The Walt Disney Co 38.0% S&P 500 TR USD 48.5% 4/17/2019 The Walt Disney Co US Dollar Page 2 of 7

Source: Morningstar Direct The Walt Disney Co DIS

Disney Plus: Everything We Know So Far Disney Officially Owns 21st Century Fox - Intended to compete with industry leaders like Netflix and will be - Disney Acquired Fox March 20th for $71.3 Billion priced competitively at $6.99 a month - The purchase puts Disney in a stronger position to take on - Disney chairman and CEO indicated that Disney Plus is the streaming companies. company’s “biggest priority” in 2019

- Disney is planning to have approximately 7,000 episodes of - The deal is one of the largest media mergers ever television series and 400 to 500 movies available on the service when it launches - Some of the most notable acquisitions from Fox include the Simpson’s, FOX Sports, the original movie, and X- - The overall theme of the content will be family friendly Men to name a few

Disney Confirms Bundle Disney+, ESPN+, and Hulu Disney's 'Star Wars' Lands Announce Opening Dates

- Kevin Mayer, chairman of Disney’s direct-to-consumer division: Disney will “likely” sell its - Disney announced that the new theme lands will open May 31 at standalone, paid subscription services — Disney+, ESPN+, and Hulu — as a bundle for an in California and on August 29 at Disney's Hollywood Studios in Florida appealing price

- Tying all of these things together is an obvious move if Disney wants to make things - The new world will be the largest single-themed land expansion in the easier for consumers parks' history

- Pairing its services together could also eat into the cable industry and internet TV - The areas in both parks will be called “Star Wars: Galaxy’s Edge” services like Sling TV and YouTube TV

- It’s likely that some consumers won’t need a traditional cable package if they’ve got on- - Disney is creating a new planet called “Batuu” which will be the setting demand TV episodes, sports programming, and Disney’s vault of classics and Marvel films of Galaxy’s Edge in one bundle for a single, straightforward price.

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Source: Morningstar Direct The Walt Disney Co DIS

Industry Environment: Disney has a unique position as being one of the largest media companies, with a dominant market share in the film industry specifically. Comcast owns Universal, Universal theme parks, and NBC but also has its wired and wireless broadband segment with Xfinity. Sony has Sony Pictures, Columbia, MGM, and Warner Brothers but also makes consumer electronics and PlayStation. National Amusements, owner of Viacom is also a large competitor in television. Netflix is now a competitor with its films and television, and with the launch of Disney Plus, Netflix will become Disney's largest streaming competitor. Disney has more franchises and intellectual property than all of its adversaries as well as a beloved brand image. The children of most of the world fondly remember Disney properties above others. Finally, Disney has made a major decision by contesting a segment that our group believes will be the future of television: streaming. With so many consumers cutting cable for a variety of streaming services, if Disney can merge its three streaming services into one package deal, we believe they have an advantage over its streaming competitors.

Competitor Comparison

Market Gross Net Net Revenue Revenue % Gross Net Cap Current Receivable Profit Income Income % (mil) Chg Margin % Margin % (mil) Ratio Turnover (mil) (mil) Chg (Daily)

The Walt Disney Co 59,434.00 7.79 26,708.00 44.94 12,598.00 40.29 21.20 233,511.02 0.94 7.49 Comcast Corp Class A 94,507.00 11.15 64,815.00 68.58 11,731.00 -48.40 12.41 189,954.65 0.79 9.48 Netflix Inc 15,794.34 35.08 5,826.80 36.89 1,211.24 116.71 7.67 156,939.73 1.49 Sony Corp ADR 80,338.34 12.37 21,754.21 27.08 4,614.89 569.67 5.74 59,813.13 0.92 8.69 Competitor Comparison (Cont.) Free Total P/E P/B Dividend Cash Asset Debt ROA % ROE % Beta 5 Yr Ratio PEG Ratio Ratio Yield % Flow / Turnover to Total Forward Current TTM Sales % Equity TTM The Walt Disney Co 0.61 12.96 0.43 27.97 0.92 18.48 2.75 4.64 1.32 15.96 Comcast Corp Class A 0.43 5.34 1.56 16.73 1.10 14.56 1.13 2.65 1.86 13.32 Netflix Inc 0.70 5.38 1.98 27.46 1.38 86.21 3.07 29.96 Sony Corp ADR 0.47 2.67 0.45 17.96 1.36 12.76 2.41 1.78 0.56 0.13 Investment Growth

Time Period: 4/17/2018 to 4/16/2019

37.5%

30.0%

22.5%

15.0%

7.5%

0.0%

-7.5%

-15.0%

-22.5% 5/2018 6/2018 7/2018 8/2018 9/2018 10/2018 11/2018 12/2018 1/2019 2/2019 3/2019

The Walt Disney Co 31.7% Comcast Corp Class A 27.9% Netflix Inc 16.8% Sony Corp ADR -2.6% AT&T Inc -3.6% S&P 500 TR USD 10.8% 4/17/2019 The Walt Disney Co US Dollar Page 4 of 7

Source: Morningstar Direct The Walt Disney Co DIS

Strengths: Weaknesses: Popular and Strong Brand- Disney is known by a majority of people Many Unknowns with a Late Entry into Streaming- The un-launched worldwide and is one of the world's most powerful brands. Disney Plus streaming service has unknown variables with respect to its ability to penetrate a saturated market, including the priceline of its new Huge (Growing) Library of Content- Recent acquisitions have package plan announced recently. greatly expanded Disney’s already large content library. Along with many memorable Disney classics, they now own; Marvel, ESPN, , Weak Chinese Presence (Currently)- Despite a large international push, The Last Jedi underperformed at Chinese box offices as Disney continues to and . struggle at pushing one of their largest franchises. They also only hold a Ability to Innovate- Along with massive amounts of creative talent, minority share in their two Chinese parks. Disney also has it’s “Imagineers” that come up with new technology Limited Room for Further Acquisitions- There are few remaining media for their theme parks as well as other patented innovations that keep companies or franchises that Disney could acquire to grow and further the company on the cutting edge. expansion could run into trouble with antitrust regulators.

Strong Leadership- Bob Iger has been able to keep Disney on A large Amount of Debt- The debt from the recent acquisition of course while also overseeing rapid expansion for over a decade as Twentieth Century Fox limits the ability of Disney to react to future Chief Executive Officer. challenges dynamically and places an undue burden on its financials.

ESPN Plus- The online subscription model for ESPN Plus has a Subject To Risk Of Challenges to Copyrighted Material - Disney is strong and growing base of 2 million subscribers, the largest for any subject to challenges to its copyright, trademark and patent rights by third similar competitor in sports broadcasting. The technology used for parties. Successful challenges by those third parties could result in ESPN Plus will eventually be used with Disney Plus. increased costs for obtaining the rights, or loss of an opportunity to earn revenue from losing rights.

Opportunities: Threats: Disney Plus Streaming Service- Despite having a massive content Netflix Original Content and Mass Market Share- Netflix currently back-library, this upcoming streaming service could be the best way dominates the streaming market with over 100 million subscribers yet to leverage that content to generate revenue. and a large library of compelling original content. Netflix is currently spending 12 billion dollars on its original content, a number Theme Park Expansion- Disney continues to innovate and expand expected to increase. in its theme parks, adding many new attractions to maintain and grow its customer base. The major expansion is the addition of Star Looming Economic Recession- An economic recession could have Wars to its Hollywood Studios park which is set to take place next negative impacts on large portions of Disney’s business, especially month. their parks segment

Unexplored Intellectual Property- With their many acquisitions Greater International Competition- China is beginning to make such as Marvel, Disney maintains the rights to large amounts of large investments in domestic film production. intellectual property which have the potential to be made into blockbuster films. Competition on Multiple fronts- Disney is in film, television, theme parks, games, and is expanding into many new arenas. Each new Video Game Development- Disney develops games primarily for segment faces numerous competitors. mobile platforms but is expanding into other areas. They also license the rights to content to other games companies. A Sustained Increase In Pension Benefits - Disney currently employs over 200,000 people. With the baby boomer generation Cost Savings- It is estimated that Disney could cut up to two billion retiring, a sustained increase in Disney’s post-retirement costs could dollars in costs from the Fox acquisition. hinder its profitability.

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Source: Morningstar Direct The Walt Disney Co DIS

Valuation: Discount Cash Flow Model (DCF) We received a discounted cash flow value of $115.02. We believe this severely undervalues the company and does not take into account the increase in price the stock experienced recently due to the announcement that DIS would likely bundle its streaming services. We also did not know how to correctly account for the major capital expenditure accumulated through the purchase of 21st Century Fox. It was difficult for the group to adequately realize the mid-term and perpetuity expenditure for the category.

Valuation: Discount Dividend Model (DDM) We arrived at a value of $140.09 which we believe more accurately represents Disney’s Value. The group decided to use a WACC analysis instead of a cost of equity analysis because we believed that with Disney’s major acquisition of Fox, it made sense to use a company oriented valuation using WACC than an industry- oriented valuation using the cost of equity.

Valuation: Multiple Valuation For our multiples valuation, we used Disney’s 10 years historical P/E multiplied by 3 year future EPS and we arrived at a value of $117.64. We believe this undervalues Disney because we were unable to use a five year EPS because of a technological malfunction with Capital IQ. In the group’s opinion, a five year future EPS would have accounted for more equity growth, thus increasing the average EPS, therefore increasing the total value. We also believe that this valuation does not take into account the recent headlines that spurred a 12% increase in the stock’s value.

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Source: Morningstar Direct The Walt Disney Co DIS

Bloomsburg Investment Group Disclaimer This report was developed by student members of the Bloomsburg Investment Group (BIG). The purpose of the report is to provide research analysis of securi�es to poten�al and exis�ng donors of The BIG Fund. The report is designed to exemplify the abili�es of our members through investment research and analysis. Analysts of the Bloomsburg Investment Group and The BIG Fund are not registered brokers, investment advisors, or licensed financial professionals. The generated opinion of our analysts is not an offer or solicita�on to buy or sell any security, and due diligence is recommended before making any financial transac�on. Informa�on included in this report was compiled from different public sources. Not all relevant data was included into the report, and accuracy is not guaranteed. Students, faculty, and staff of Bloomsburg University may have a financial interest in any company listed in this report.

Sources Cited https://www.reuters.com/finance/stocks/company-profile/DIS.N https://www.forbes.com/sites/kathryndill/2016/02/18/disney-tops-global-ranking-of-the-most-powerful-brands-in-2016/ #18c14be53ecd https://variety.com/2019/digital/news/netflix-content-spending-2019-15-billion-1203112090/ https://www.thestreet.com/story/14422558/1/disney-will-have-massive-debt-after-buying-fox.html https://www.theverge.com/2019/4/11/18306883/disney-hulu-espn-plus-streaming-service-bundle-deal-likely https://www.nytimes.com/2017/12/14/business/media/disney-fox-espn-tv.html https://www.npr.org/2019/03/20/705009029/disney-officially-owns-21st-century-fox https://www.digitaltrends.com/movies/disney-plus-streaming-service-news/ https://www.cnet.com/news/disney-plus-every-show-and-movie-that-will-or-may-be-available-to-stream/ https://www.cnn.com/travel/article/disney-star-wars-galaxys-edge-preview/index.html

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Source: Morningstar Direct