the TrashMan cometh.......... -g- Michael Eisner Rapes the DIS shareholders to the tune of 700 million in 3 years. .........Zippy doo da -g- We should send a lynching party after that Bozo.
It's Time to Get Real on Disney
By Arne Alsin
Special to TheStreet.com
8/27/01 7:32 AM ET
Forget about Disney (DIS:NYSE - news - commentary) stock in the current market cycle. Not because it's headed for a steep decline, but because the upside potential of the stock is about as exciting as Disney's Pearl Harbor movie; in a word, this stock is boring.
You need only look at the numbers to see why Warren Buffett abandoned Mickey Mouse & Co. a couple of years ago. While Disney's financial performance will improve when the economy perks up, it won't be enough to support a sustained rally in this richly valued Dow stock. Here are the key points of this story:
Revenue growth has been embarrassing for years. Actually, there is no "growth" in the top line if you adjust for inflation. Considering the billions invested in theme parks in the past few years by this capital-intensive company, sales should have been measurably higher than inflation.
Operating margins have been stuck in the low 20s for over a decade. With Disney's business model, it's hard to conjure up scenarios that include a lift to operating margins.
ABC has been consistently struggling with downtrends in viewership and advertising.
Movie programming is a tough business. With fickle consumption patterns, plenty of "supply" and lots of risk, Disney will continue to produce inconsistent results.
With Dreamworks and Sony (SNE:NYSE ADR - news - commentary) offering solid competition, the days of Disney's effective monopoly in animation are over.
Who is winning over the kids? The saucy characters at Nickelodeon, such as the Rugrats, have the momentum with kids, much more so than Mickey what's-his-name.
There is somebody making money off of Disney, even if it's not the shareholders. For the 1998-2000 period, CEO Michael Eisner received roughly $700 million, ranking near the top of the list of executives who gave shareholders the least for their pay. During that period, shareholder return was a negative 10%.
The last bull market was marked by extremes in big-cap stocks, like Disney, and valuations were stretched beyond reason. It's time for investors to recognize that making money in the current cycle requires avoiding the excesses of the prior cycle, while finding opportunities in small- and mid-cap "real" companies. |
