Animation King Disney has Bright Future

Forever known as one of the pioneers of animation, Disney (DIS) has put management reshuffling behind it and now looks refocused and determined to deliver for shareholders. Current quarter earnings were a good indication that the strategy is working. Nearly all segments of the business looked good as Disney delivered $0.58/share vs. a year ago $0.51/share and the market expectation of $0.55/share. On the revenue front Disney reported $9.05Billion vs the expected $9.02Billion.

The biggest rise came from the television unit as ABC posted strong numbers led by lower production costs and higher ABC Studio sales, as hit shows like "Lost" continue to do well in several markets. ESPN also helped here and the company even stated that ESPN will recognize $185Million more in deferred revenue in the 4th quarter than last year.

In its theme park segments Disney saw increases of 6% in revenue and 13% in operation income. These numbers were particularly strong as attendance gains were seen even as an increase in ticket prices more than offset rising gasoline prices. Management even went as far as to say that margin improvements were seen and the theme park business is very strong.

The movie division was down year-over-year due to strong DVD sales from the prior year, however with movies like the 3rd "Pirates" and "Ratatouille" coming to DVD for the holiday season there's reason to be optimistic that the movie business will be strong in the coming quarters. Disney made the big animation splash when it purchased Pixar, then became the first studio to offer movies for download on iTunes, and it is this management vision that Bob Iger brings that was lacking in years past when the company was run by Michael Eisner. While Pixer's latest film "Ratatouille" is doing well at the domestic box office, the foreign nature of the film's subject matter should propel it to much larger returns in foreign markets than its predecessor "Cars". All reasons to smile as Disney regains its position as the studio for animated features.

Disney further expanded its online strategy as it purchased Club Penguin for as much as $700Million. Club Penguin is a virtual online world for kids and already sports as many as 700,000 subscribers. A nice addition to Disney's already growing stable of online properties.

With these latest numbers Disney sports a trailing P/E of 15 and a forward P/E in the low-mid teens. With the business growing in double digits, and it looks like this will continue into next year, the stock sports a PEG of around 1.1, which is very reasonable for this kind of media powerhouse. Analysts targets should be reaffirmed after this quarter and as the average estimate is around $40/share the 18% upside makes for a healthy risk/reward ratio.

With old favourites and a growing nest of new properties there's a lot of positives surrounding the house that Mickey built.

Disclosure: Author holds no position in DIS