Needham & Company Maintains a 'Hold' on Walt Disney (DIS); ROIC Analysis and FY12 Outlook
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Price: $106.85 +1.96%
Rating Summary:
35 Buy, 19 Hold, 4 Sell
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Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
Rating Summary:
35 Buy, 19 Hold, 4 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
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Needham & Company maintains a 'Hold' on Walt Disney (NYSE: DIS).
Needham analyst said, "There is currently a 93% correlation between FY12E ROIC and media industry share prices. Wall St closely follows the income statement, ie, the numerator. In this quarterly report, we analyze the denominator - trends in assets employed, capital intensity, and free cash flow. Highlights from DIS’s capital allocation in the 9/30/11 quarter included: 1. Return of Capital. If shares plus debt are shrinking, this implies less capital is being used in the business, which implies rising ROICs. Average Shares Outstanding fell by 3mm ($100mm) while Net Debt rose by $1,073mm in 4Q11. Therefore, capital returned to capital markets was negative in the quarter.. 2. CapX trends are a lead-indicator of ROIC growth. DIS’s CapX rose by 70% ($1.5B) to $3.6B in FY11, and we expect DIS to spend nearly that level in FY12. Capital spending growth is stymieing ROIC improvement. 3. TV & Film. DIS spends 40% more on buying and making TV and film programming than it does on capital spending. DIS’s TV and Film inventory totaled $5B at 9/30/12, down 9% from FY2011 levels, which should be positive for ROICs. 4. Total Assets rose by $1,019mm (1.4%) to $72.1B in FY4Q11. Net assets employed rose by $1,353mm while cash balances fell by $334mm. 5. Cash From Operations fell 5% y/y to $2.1B in FY4Q11, but was up 6.3% to $7.0B in FY11. We note the growing difference between reported EBITDA growth vs cash from operations."
"We expect DIS’s ROIC to be flat at 10.5% in FY12, one of the lowest performances in our coverage universe. DIS continues to spend on its Parks & Resorts division, a low ROA performer. DIS’s WACC should remain at 8.7%."
For an analyst ratings summary and ratings history on Walt Disney click here. For more ratings news on Walt Disney click here.
Shares of Walt Disney closed at $35.92 yesterday.
Needham analyst said, "There is currently a 93% correlation between FY12E ROIC and media industry share prices. Wall St closely follows the income statement, ie, the numerator. In this quarterly report, we analyze the denominator - trends in assets employed, capital intensity, and free cash flow. Highlights from DIS’s capital allocation in the 9/30/11 quarter included: 1. Return of Capital. If shares plus debt are shrinking, this implies less capital is being used in the business, which implies rising ROICs. Average Shares Outstanding fell by 3mm ($100mm) while Net Debt rose by $1,073mm in 4Q11. Therefore, capital returned to capital markets was negative in the quarter.. 2. CapX trends are a lead-indicator of ROIC growth. DIS’s CapX rose by 70% ($1.5B) to $3.6B in FY11, and we expect DIS to spend nearly that level in FY12. Capital spending growth is stymieing ROIC improvement. 3. TV & Film. DIS spends 40% more on buying and making TV and film programming than it does on capital spending. DIS’s TV and Film inventory totaled $5B at 9/30/12, down 9% from FY2011 levels, which should be positive for ROICs. 4. Total Assets rose by $1,019mm (1.4%) to $72.1B in FY4Q11. Net assets employed rose by $1,353mm while cash balances fell by $334mm. 5. Cash From Operations fell 5% y/y to $2.1B in FY4Q11, but was up 6.3% to $7.0B in FY11. We note the growing difference between reported EBITDA growth vs cash from operations."
"We expect DIS’s ROIC to be flat at 10.5% in FY12, one of the lowest performances in our coverage universe. DIS continues to spend on its Parks & Resorts division, a low ROA performer. DIS’s WACC should remain at 8.7%."
For an analyst ratings summary and ratings history on Walt Disney click here. For more ratings news on Walt Disney click here.
Shares of Walt Disney closed at $35.92 yesterday.
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