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Leaving the Dust of Disney in the Rearview…
“You can design and create, and build the most wonderful place in the world. But it takes people to make the dream a reality.” – Walt Disney
You’ve gotta wonder if old Walt is rolling over in his grave. The man with a dream and passion for people wouldn’t recognize the empire he built today. If he took a stroll down Main Street USA with Mickey on one side and Donald on the other, he’d be disgusted. Not by the beautiful structures, rides or atmosphere… but by what the company has become; a money sucking vampire that prays on families, replaces American workers with cheap foreign labor (imported to the USA) and leaves park goers dazed and confused.
Perhaps I’m being a little over dramatic, but having just returned from a very long week at Disney World, I find myself left with a wallet that’s lighter than air, sweat stained dirty laundry and sunburned children who continually have “sword fights” with the overpriced, cheap plastic pirate cutlasses we got them.
Apparently sunscreen can only do so much when you’re waiting in line for an hour in the mid-day Orlando sun. And somehow it’s more humid there than it is in the ocean. In all honesty, the Caesar family did have a great time, especially our young buccaneers… at a great expense. And yes, we’ll be going back.
But today’s letter isn’t about my experience, or the experience of those who take out second mortgages on their homes to visit the place, it’s about what may happen to Disney stock in the coming few years.
The Walt Disney Company (DIS) is going through a PR nightmare right now, somewhat akin to what SeaWorld has been going through, although quite different really. You see, Disney has been hiring foreign workers to replace Americans, in America (mostly in IT jobs). Not only that, but the American IT worker was to train his foreign replacement before being let go.
It gets juicier. It now looks that after being replaced, the American worker would then be “blacklisted”. Meaning that former employee could no longer work for the Disney Company, either directly, or by contract work with an outside firm. Ouch! Over 100 US tech workers were replaced this past January. And now, finally, it’s really becoming a real PR issue for Disney.
Why would one of America’s great companies do this? To loyal employees, in the USA? To save money on salaries of course! And this cost cutting extravaganza may indicate that Disney may be in some financial trouble… or at least they see the possibility of it down the road.
With ticket prices at $105 for a one day pass, it’s becoming increasingly more problematic for families to take their kids to their parks. Yes, they still “pack em in” but there will eventually reach a point where it’s just too expensive for the average Joe.
Cutting salaries and raising prices is often a sign of financial distress. But could the great Disney really be in trouble?
Well besides the “cost cutting and price raising” Disney has had a few real bombs in their movie business. John Carter, Mars Needs Moms, The Lone Ranger and now Tomorrowland… to name a few. In fact Tomorrowland (still in theatres) is doing so poorly, Disney just cancelled the production of Tron3.
Of course they also have some recent blockbusters. The Pirates of The Caribbean franchise, and Frozen to name a few. The Pirates’ movies are likely done with now, but Frozen 2 is in the works. But will one burgeoning franchise be enough to stop the box office bleeding and turn their film division around?
Disney does have a trump card. Perhaps the most important acquisition in their history… Lucasfilms. Disney now owns the Star Wars franchise, and is producing three new movies. Undoubtedly, the box office take on these three will be in the multi-billion dollar range, and the theme park additions will draw (and will cost hundreds of millions to build, I’m sure).
There will likely be a “Star Wars” theme park coming to Disney World Orlando, to accompany The Magic Kingdom, EPCOT, Hollywood Studios and The Animal Kingdom… and by the time it’s built, expect to pay upwards of $125 to $150 for a one day pass… will anyone be able to take their family of 4 to Disney in a few years? It’s tough enough now.
So with all these questions about the future of The Walt Disney Company (DIS), lets finally have a look at their chart and some of their basic data.
Wow, what a march to the moon. The last significant pullback occurred back in 2011. With the PR nightmare, failing movies and a tough economy, stock in DIS could very well be on the verge of a healthy pullback.
With the stock at $110, you can either go to one of their theme parks for the day, or buy 1 share. This $188 Billon company is trading at a PE of 24 (just a tad higher than the industry average) and is yielding 1% on a $1.15 dividend payment (earning $4.65 per share).
The company has a history of averaging near 1% on their dividend yield, so that does seem rather safe. However, Disney investors are not likely in a $100+ stock to gain 1% a year in dividends. It’s that crazy uptrend in the chart and the continued earnings that have people buying and holding for the long-term.
Will the Disney chart continue to methodically march uphill? Over the long term, it’s very likely. I’d love to see a 10% pullback here in the short-term, however before I’d consider adding it to my own portfolio.
While on the surface it does look like Disney could be in for some troubles (although the chart says the opposite), over the long term, DIS is a great stock… I just with it would drop to a level worth buying in the short term… especially BEFORE the Star Wars movies start rolling out.
So even though it costs $18 for a hamburger, and $9 for a beer, people still flock to the Disney parks. If the company can keep a balance between perceived value and earnings, they’ll continue to be a great American company… now just hire back those damn IT guys you replaced and I’ll forgive the long sweaty lines and sun scorched skin.
Until next time…
“You’re dead if you aim only for kids. Adults are only kids grown up, anyway.” –Walt Disney
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