Do You Want to Own a Piece of Walt Disney Co?

Walt Disney Co. is a highly diversified, multi-billion dollar company. A very popular investment for the "buy and hold" investors, this company is guaranteed to continue to grow...right? Citigroup downgraded Disney's stock price last week, citing their concern of the stability of the amusement parks. On CNBC's Mad Money, Jim Cramer called this downgrade a "miscarriage of justice...Citigroup only talks about Disney's theme park business. Nothing about their cable properties, broadcasting, DVD sales or films..."

Now, I've got nothing against Disney. Who doesn't love Disney? I also think it is a good, safe (under most circumstances) long-term investment. The purpose of this article is to determine if it is good enough for your portfolio using a stock trading strategy with a goal of 15% growth.

Let's begin with growth. The sales growth rate for the last 10 years was 5%. The EPS growth rate, 11% and an equity growth rate of 6%. Not really that impressive. The Analyst equity growth rate is at 13.8%, which I believe is too high. Granted, the "professional" analysts use a much more complex calculation process to determine their equity growth rate, but I prefer a much more simple calculation. I came up with 6%.

Note: When I calculate equity growth rate, I compare it to the analyst's calculations and will default to the lowest (most conservative) growth rate for the remainder of my analysis. In this case, 6-percent is the lower of the two and was used to determine future value and present value.

The bottom line of these numbers is that in my Mission Statement for a Solid Stock Trading Strategy I describe that the goal of my portfolio is 15%. To accomplish this, these growth rates have got to be above 10-percent. So I would normally not look at Disney any further.

I know, I know, it's Disney. So, here is the rest of the analysis. I have calculated a Future EPS growth at 8.5% creating a future value of $162.29 per share in ten years. That creates a current value of $40.12. Yes, Disney is undervalued, but is it undervalued enough?

Jim Cramer has it as a buy. "Cramer notes Disney has a 15% long-term growth rate and trades at a mere 13.8 times earnings." I'm not sure Disney is going to do as well in our slowing economy as Jim Cramer thinks and using the rules I have vaguely described in my Trading Strategy (derived from Phil Town's book, Rule #1), the stock price must be 50% of the value before it is "on sale". Therefore I would not purchase Disney stock until it was approaching $20.06 and with the stock price hovering around $31, I'd have to pass today (I'd still go to the theme park though!).

Remember, before investing any money there are other critical financial steps you must take. Read Before You Invest ANY Money, READ THIS!to make sure those financial building blocks are in place!