Question

DISNEY’S NUMBERS

Use the following information on Disney to answer the case questions. Disney’s current stock price is $113.00 per share. The average growth rate of the company’s dividend has been 16.09% from 2002 through 2017. Disney’s return on equity is 19.5% and the company retains approximately 75.7% of its profits while paying out the remaining 24.3% in dividends. The company’s stock currently trades at 16.27 times its current year earnings estimate of $6.96 per share. Analysts expect the company to earn $7.36 per share in 2019 and $8.24 in 2020. Disney’s peers engaged in movie making trade at 19.6 times their current year earnings estimates while peers in parks and resorts trade at 19.2; media and broadcasting at 17.0 and consumer products at 19.1.

What is Disney stock’s intrinsic value using the dividend discount model?

Answer 1

Price = $113

growth =16.09%(2002-2017)

Dividend Payout Ratio = 24.30%

Return=19.50%

EPS=6.96 (Current Year)

P/E Ratio =16.27

EPS 2019=7.36

DPS 2019=1.78848

EPS 2020=8.24

DPS 2020=2.00232

Average of PE ratio of Competitors= 18.725 times

Therefore Intrinsic Value as per market value basis =18.725*6.96=130.326

Using the above price to get growth Rate as per DDM= D1/Re-g=130.326

=1.78848/(19.50-g)=130.326

We get G=13%

Now Intrinsic Value according to ddm= D1/(re-g)

where D1=1.788

g=13 as computed Above

r=19.50

we get Intrisic Value as per DDM=$138