Disney wants higher valuation but Wall Street hesitates

By Gina Keating

LOS ANGELES (Reuters) - Walt Disney Co is waging a campaign to convince investors that its product range and brand make it more valuable than media peers and more like a consumer goods company -- but so far that has proved a hard sell on Wall Street.

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, at 10.6, and Time Warner Inc, at 12.2. But its price-earnings ratio lags consumer companies with similar brand power, including Coca-Cola Co at 15.7 times 2009 earnings, Nike Inc at 17.1, and Procter & Gamble Co at 16.7.

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.