DISNEY WALT CO 
By By Gina Keating
On calls with analysts and at investor conferences since November, Chief Executive Bob Iger and Chief Financial Officer Tom Staggs have argued that the second-largest U.S. entertainment company should be viewed as a stable global brand rather than a cyclical, hit-driven media business.
"I think we should be considered differently from our peers ... hopefully that translates into value as well," Iger said on Tuesday at the opening of the Toy Story Mania ride at Disney's California Adventure theme park in Anaheim, California.
Disney executives have been touting "the Disney Difference" -- the company's growing stable of characters, its ability to apply them to all its businesses and its growing global reach -- as elements that set the company apart from media rivals.
But some analysts, including David Bank of RBC Capital Markets, say as long as Disney derives so much of its revenue from movies, TV and theme parks -- 93 percent in 2007 -- it will be valued as a media brand, especially in a down economy.
"There is no way to get around the reality that Disney is a hit-driven business," Bank said, though he accepted that "a leverable brand does tend to get a premium" valuation.
At a multiple of 13.4 times estimated 2009 earnings, Disney shares trade above big names like Viacom Inc
Disney's share price, having climbed out of a trough around $23 shortly after Iger took over, has languished in the mid-$30 range for more than a year despite three years of double-digit earnings growth and $16 billion in share buybacks. Yet analysts who follow Disney have a median price target of $40.
IT'S THE ECONOMY...
"I think the reason its (P/E ratio) is somewhat depressed is not because Disney is not a 'best of breed' brand -- it is concerns over the macroeconomy," Bank said.
To get the same treatment as a global consumer brand like Nike, Disney needs a larger overseas presence, Susquehanna Financial Group analyst John Shanley said. Nike earns about 62 percent of its revenue abroad versus 20 percent for Disney, insulating Nike against sales and fashion cycles, he said.
"As Nike grows internationally, that seasonality becomes less of a factor," said Shanley, a senior athletic and footwear industry analyst. "There is much more cyclicality in footwear than you are going to find in the Walt Disney business."
Iger and Staggs have argued that no other U.S. media brand can sell products around the world like Disney.
"We really have the most valuable brand in global family entertainment and in much of the space that we occupy, (we are) the only real brand that matters," Iger said.
The executives say they have cushioned businesses against economic swings: by introducing moderately priced vacation packages and hotel rooms at its parks, testing online ad sales and distribution to hedge against weak TV ratings, and cutting movie output to focus on Disney-branded family fare that can sell across all its units.
Crowell, Weedon & Co partner Douglas Christopher agreed that Disney's global brand equity is "great" but cautioned "you can't just take a brand like that and go into every market."
Disney would have a hard time equating itself with consumer staples like Coca-Cola or Procter & Gamble because of its past initial difficulties in international markets, as well as the nature and pricing of its products.
"When you are talking about purchases of $5 or less -- staples -- you can make that argument better, which is why you see Procter & Gamble trading at the high end of the range of (P/E) multiples," Christopher said.
Investors should instead reward Disney for its stable free cash flow and for fixing operational problems from the 1990s, as well as acknowledge its U.S. real estate assets.
"They have been delivering and the stock is the same price," Christopher said. "This is a company that is being valued as a sleepy old industrial company."
An increase in Disney's annual dividend, whose return is less than half that of Coke and P&G, could also make "a lot of friends" in the investment community, Christopher said.
Tuna Amobi, senior media and entertainment analyst for Standard & Poors Equity Research, said that while "there is something to be said for Disney's ability to spawn new franchises and monetize them," it does not fit a consumer products mold.
"I think that would be short-changing the other assets they bring to the table," Amobi said, adding that with those assets comes volatility.
"ESPN and the parks are the main engines that are driving the main results of Disney," he said. "ESPN has been as steady as they come ... the biggest question mark is how the parks are going to hold up."
(Editing by Braden Reddall)
