Disney Reaches Record as Media Stocks Gain on Program Fees

Walt Disney Co. (DIS) rose the most in almost two weeks, reaching an all-time high as investors bet rising fees from pay-television services will extend gains for media stocks.

Shares of the world’s largest entertainment company gained 2.1 percent to $69 at the close in New York, eclipsing the May 15 all-time closing high of $67.67. The stock is up 39 percent for the year, compared with 23 percent for the Standard & Poor’s 500 Index (SPX), which closed at a record 1,754.67 today, and 38 percent for the S&P 500 Media Index of 16 stocks.

Entertainment companies including Disney, Viacom Inc. (VIAB) and CBS Corp. (CBS) are benefiting from the increasing fees they are able to charge pay-television services for their broadcast and cable shows. Analysts project shares of Disney, the owner of theme parks, TV networks and film studios, will reach $72.46 within 12 months, the average of 24 estimates compiled by Bloomberg. CBS and 21st Century Fox Inc. also made new highs.

Disney’s profit is forecast to increase 9 percent to $1.36 billion, or 75 cents a share, in the just-ended fourth quarter, the average of 19 analysts’ estimates. The company, based in Burbank, California, reports results after markets close on Nov. 7. Of 34 analysts who rate the stock, 21 recommend buying, while 11 say hold and one says sell.

Profit growth stalled at $1.85 billion, or $1.01 a share, in the third quarter ended June 29, crimped by costs to market the July film “The Lone Ranger,” higher TV programming expenses and lower ratings at the ABC network.

The company said last month that it may double its stock purchases to $8 billion next year.

Cash Flow

While the buyback cost will exceed discretionary cash flow, Standard & Poor’s said in a Sept. 12 report that the company will be able to maintain its A corporate credit rating.

“Disney remains the preeminent company for monetizing intellectual property across a breadth of businesses,” Naveen Sarma, a credit analyst at S&P, wrote in the report.

The buyback comes as capital spending shrinks from a peak of $3.78 billion in fiscal 2012. In recent years, Disney has expanded parks in California and Florida, built cruise ships and developed a resort in Hawaii. A new destination in Shanghai is scheduled to open at the end of 2015.

Spending on projects and acquisitions will continue, Chief Financial Officer Jay Rasulo said in September, citing as examples Marvel, Lucasfilm and purchases in games and international TV networks. The company is interested in deals that increase its distribution capability, he said.

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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