This article is authored by MOI Global instructor Adam Zuercher, CEO & Chief Investment Officer of Hixon Zuercher Capital Management, based in Findlay, Ohio.
When you think of entertainment, cinema, and theme parks, what company comes to mind? You’re probably thinking Disney. The company is the world leader at the box office, their parks have no equals, and they are building an empire through mergers and acquisitions. Their current business is doing extremely well and experiencing strong growth, while being fundamentally sound, but we believe the best is yet to come.
Disney claims to have four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media. We believe the addition of Disney+ and the additional equity stake in Hulu through the upcoming completion of the 21st Century Fox acquisition along with ESPN+ and the investment in BAMTech add a distinct fifth segment, Streaming Services. It is this new segment where we believe the most growth lies.
Fundamentally, Disney has grown revenue steadily over the last 10 years while operating profit and earnings have easily outpaced revenue growth. They have managed cash and debt well while investing in the business with mergers and acquisitions as well as exceptional focus on returning cash to shareholders through an ever-increasing dividend and share buybacks. Returns on assets, equity, and invested capital have generated exceptional value as well.
Bob Iger has had a very successful career at Disney thus far. He became CEO in 2005 after holding multiple senior leadership positions at Disney and ABC. His interests are also aligned with those of the shareholders as he currently holds over one million shares of Disney stock which represent over $100 million.
One thing we look at is the performance of company fundamentals during each board member’s tenure. Each board member has seen revenue, EPS, and free cash flow increase in their time on the board. This fact proves that Disney’s Board of Directors has proven to be very effective in their leadership of the company.
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