The media conglomerate posted mixed results, but we're maintaining our wide-moat rating.
By Neil Macker, CFA | 02-07-17 | 11:30 PM | Email Article

 Disney  posted a mixed first quarter of fiscal 2017, as the top line came in below our expectations but EBITDA was in line with our projection, as the cost controls improved margins at the parks and resorts division. However, the media networks segment reported lower-than-expected operating income as ESPN suffered from lower ad revenue due in part to the timing of college playoff games.

Neil Macker, CFA, is an equity analyst for Morningstar.

We are maintaining our wide moat rating and our fair value estimate of $134. With shares trading in the four-star range, the stock may offer an attractive entry point for investors with a longer-term investment horizon.

Revenue fell 3% over last year to $14.8 billion, as park resorts (up 6%) was the only segment with year-over-year revenue growth. EBITDA declined 3% to $4.4 billion, in line with our estimate, as the 2% decline at media networks and over 17% decreases at both the studio and the consumer segments more than offset the 15% growth at parks and resorts. The decline at media networks was due to increased sports rights costs at ESPN, foreign exchange impact, and the timing of the college football playoff games. However, affiliate fee growth remains strong at 4% despite worries about the decline in pay television subscribers.

The improvement at park and resorts was driven by the Shanghai resort and improved cost controls which offset inflation and wage increases. Shanghai has already served over 7 million guests with more than 10 million expected by the one-year anniversary this summer. Management announced that the Avatar land at Animal Kingdom will open on May 27 and that Stars Wars Lands in L.A. and Orlando will open in 2019.

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Neil Macker, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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