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

Here the Growth rate is constant,

So, According to Dividend discount model of constant growth,

Intrinsic Value of the stock = D₀(1+g)/(Ke-g)

Where, D₀ = Current Dividend

g = growth rate of dividend =16.09%

Ke= Return on equity =19.5%

Now for calculating D₀, we know that company is paying 24. 3 % as dividend. Also return on equity = 19.5%. Share price = $113

Now return on equity = 19.5% of 113 = $22.0

So divided = 24.3% of return on equity = 22*24.3% = $5.354

Putting all the values in the formula of intrinsic value

IV of stock = 5.354*(1+0.1609)/(0.195-0.1609) = $182.29

So, intrinsic value of Disney from Dividend discount model is $182.29