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Disney Stock, Again a Cinderella Story

15 February 2013 in Trading Ideas

Kids are big business, and no company combines “kids” and “business” quite like Walt Disney. And so when Disney’s earnings recently beat analyst expectations for its fiscal first quarter, attention was drawn anew to the market power of the nation’s 76.1 million kids and teens1.

At 25.6% of the portfolio, Disney has the biggest share of the Child’s Play motif, which also includes toy makers, baby care providers, family-oriented media companies and others. Those companies are vying for a piece of the estimated $14,000 that the average U.S. family spends on each child every year2. As the economy recovers, and household income levels begin to move upwards, that spending could be expected to increase.

Though Disney is almost synonymous with childhood, significant parts of the company are distinctly geared toward adults. In fact, one of those divisions, the ESPN cable network, has been weighing on the minds of investors, who are concerned about the rising prices Disney will have to pay for the big-league sports programming that is its main attraction.

But Disney chairman Bob Iger told analysts on the post-earnings conference call that the kid-oriented divisions of Disney are all doing well. Attendance at its theme parks is growing, he said, and Disney’s various film divisions all have strong line-ups of upcoming features3.

Children of all ages are speculating on how Disney will handle the Star Wars franchise it bought from creator George Lucas in October for $4.06 billion. The company has promised the first in a new series of Star Wars movies for 2015, and plans new installments every few years after that. New Star Wars-related attractions are also expected at Disney’s theme parks; the company may be betting big that the Force will be with it.

The company reported net income of $1.4 billion on sales of $11.3 billion in the last quarter, with sales coming in slightly higher than analyst projections.

1Forum On Child And Family Statistics, ChildStats.gov, http://www.childstats.gov/americaschildren/tables/pop1.asp, (accessed May 14,2012)

2Mark Lino, Expenditures On Children By Families, 2010, U.S. Department of Agriculture, http://www.cnpp.usda.gov/publications/crc/crc2010.pdf, May 2011, (accessed April 27, 2012).