Walt Disney (DIS)

Total return at 5 years: 4.4%/year = 2.7% appreciation + 1.7% dividend. The target price ($124) is ex-dividend; the $10 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($108) and the other below.

Today — expensive, no margin of safety: at $108 trades ~0.7% above its value discounted to today (~$108); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — En valor: the target price ($124) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$68.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($108) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-4.5%/year) than we project (4.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$10.2 bn of owner earnings in year 5 (vs ~$15.9 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/EBIT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

The twelve months to 27 June 2026 (the 5 Aug 2026 release, built by levels) took the base-year operating margin to 17.0% —segment operating income net of corporate of $16.83bn on revenue of $98.86bn—, against 16.2% in the previous model. The improvement coincides with a sustained acceleration in revenue over the last four quarters (from -0.5% to 6.8% year over year), consistent with operating leverage and not with a one-off event. The margin path is therefore re-anchored to this higher level, keeping the same year-over-year rate of expansion the previous model already contemplated, rather than falling back toward the prior level; the adverse and favorable scenarios keep their path from year 1. Net income for the period (US$8.6 billion) comes in well below what operating income at a normal tax rate would suggest (approximately US$15.1 billion), which points to a material non-operating charge below the operating line, still unidentified in the detail available. Because the company's valuation runs on operating income and cash flow, this charge does not change the path or the multiples: it is left declared solely in the net income row.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $124 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $108, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $124 in 5 years plus $10 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $108. Against the current market price ($108), the margin of safety is -0.7% (trades above the maximum → a premium is paid) and the total return at that price would be 4.4% annually.

• Sum of the parts. Experiences (premium EV/EBIT) + Entertainment (blend of declining linear + growing streaming) + Sports (ESPN, lower multiple for cord-cutting). The consolidated multiple hides the crown jewel's value.
• P/E is misleading. On the net income inflated by the Hulu tax benefit, P/E looks low but is not representative; on operating income it trades at ~14× EV/EBIT.
• The DCF converges. The DCF (at the method's risk-free rate, no-growth terminal) gives a value today in line with the sum of the parts brought to today: the discount exists but is bounded by the structural headwinds.
• Margin of safety at the end. At ~$108, the base return (~+4%) offers a modest margin: top-tier quality at a reasonable price, not a deep-discount bargain.
• Reverse DCF. The price discounts modest operating-income growth, consistent with linear melting and streaming compensating — there is no exaggerated expectation baked in.
• Sensitivity — streaming and parks. Value is sensitive to the durability of streaming's margin and to the parks' cyclical resilience; if streaming stalls or the parks enter a recession, the consolidated multiple re-rates.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (102%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Strong, predictable cash flow. Operating cash flow (~$17.0bn TTM; $18.1bn FY2025 inflated by a tax deferral) is solid; cruise-ship/park capex consumes part of it, with healthy free cash flow (~$8.3bn TTM, $10.1bn FY2025).
• Return on capital. ~9%, just below the 10% bar: the ~$75bn of goodwill from the Fox acquisition depresses the reported return; Experiences's incremental return is high, streaming's historical return was low (it destroyed capital during the streaming wars).
• Creates economic value. Experiences generates returns well above the bar; the consolidated figure is diluted by the weight of Fox's goodwill and by streaming's years of losses, which have only just reversed.
• The net income trap. GAAP net income FY2025 ($6.85, +152%) is inflated by a non-recurring tax benefit of ~$3.3bn (Hulu reclassification) + $1.0bn from prior years: value by operating income, never by P/E over the reported net figure.
• Acquisition amortization. ~$1.6bn a year of intangible amortization from the Fox and Hulu acquisitions (non-cash) depresses GAAP net income below the real earnings power — another reason to value by segment operating income.
• Accounting distortions to watch. (1) net income inflated by the Hulu tax benefit; (2) non-cash acquisition amortization; (3) noncontrolling interests (ESPN-Hearst, international parks) that must be subtracted from the value.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Operating income by segment is the driver of the sum of the parts. Experiences (parks + cruise ships + consumer products) monetizes attendance × per-capita spending + licensing, with the highest margin (27.6%). Entertainment blends linear (affiliate fees × cable subscribers, in decline) with streaming (subscribers × price, already profitable) and the studios (box office). Sports is ESPN (affiliate fees + advertising + the new direct-to-consumer service). Streaming's margin inflection —from a loss to $1.3bn— is the value lever; linear's decline is the drag.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (27-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real growth, not nominal. Yes — growth comes from attendance × price in parks, subscribers × price in streaming, and margin improvement, not from a currency effect.
• Where the engine comes from. Experiences (58% of operating income) grows ~+6% and streaming's margin inflection within Entertainment — the engines of value. Sports grows little (ESPN's transition).
• Driven by volume and price. Parks: attendance × per-capita spending (+5%). Streaming: subscribers × price + margin. The quality of growth is high in Experiences, in transition in the rest.
• Realistic deceleration. The base decelerates operating income from ~+6% toward ~+5% by the fifth year, with linear melting and streaming maturing — realistic, not punitive.
• Reinvestment runway. Wide in Experiences (new cruise ships, high-return park expansion); narrow in linear (in harvest mode, not reinvestment).
• Streaming inflection. Direct-to-consumer operating income improved by nearly $5bn in three years, to +$1.3bn, with guidance for a margin ≥10% — the improvement lever, backed by data.

• Relevant in 10 years / recurrence. Yes — Disney's intellectual property and the parks are century-old brands with intergenerational demand; ESPN and streaming have subscription recurrence. Linear is what erodes.
• Market share / cost. Undisputed leader in parks and intellectual property; the second-largest streaming ecosystem in the West; the dominant live-sports franchise. It is not the lowest-cost producer (content is expensive).
• Pricing power. Strong in parks (per-capita spending +5% a year) and in intellectual property; moderate in streaming (Netflix's competition limits price); in linear the power fades with cord-cutting.
• Operating leverage. High in Experiences (27.6% margin) and in streaming as it scales (direct-to-consumer income went from a loss to $1.3bn); linear has negative leverage (fixed costs against falling revenue).
• Capital cycle / competition. Streaming attracted massive capital and compressed returns across the whole sector (the streaming wars); Disney has already passed the investment peak and seeks to monetize it. The parks have no competition of comparable scale.
• Behavior in a recession. The parks and discretionary spending are cyclical (attendance already fell 1%); streaming and ESPN (subscription) are more defensive. A middling mix.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.8x
• ✓Interest coverage (EBIT / interest)13.7x
• ✕Liquidity (current ratio)0.97×
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 102% of ROIC
• ✕Value creation (ROIC − 10% bar)-1pp
• !Malinvestment test (capex vs incremental ROIC)Strong investment mode 1.6x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 1.5% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net debt. Gross debt $47.4bn against cash $5.7bn → net debt ~$41.7bn; moderate leverage (~2× segment operating income) for a business with stable cash flow.
• Ample coverage. Net interest (~$1.3bn a year) is trivial against segment operating income ($17.3bn TTM) — coverage of more than ten times.
• Minority interests. On top of the debt, ~$6.6bn on the books of noncontrolling interests (ESPN-Hearst 20%, Hong Kong and Shanghai parks), which are a claim on the segments' value — reflected in the pieces' multiples, placed at the conservative end of their range.
• Cash generation. Operating cash flow (~$17.0bn in the twelve months to 27 Jun 2026) comfortably covers capex (~$8.7bn); free cash flow (~$8.3bn TTM, $10.1bn FY2025) funds the dividend and the buyback.
• Elevated capex, not deterioration. Capex (~$9bn, FY2026 guidance) is high because of the cruise-ship fleet and park expansion — high-return investment, not a balance sheet in trouble.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Disciplined after years of streaming over-investment: it reinvests in Experiences (high return), reinstated and raised the dividend 50%, and doubled the buyback. The test is that capex earns above the cost of capital.
• Alignment / skin in the game. Iger owns less than 1% (a professional manager, not a founder); the alignment is via share compensation tied to sound metrics (adjusted earnings, return on capital, relative total return).
• Capital return. Reinstated the dividend (raised 50% to $1.50) and the buyback (guided to double, $7bn) after the pandemic pause — a signal of confidence in the cash flow. Payout still low (~22%), with room to grow.
• Integrity / communication. The succession —after several failed attempts over the past decade— was finally resolved in an orderly manner (D'Amaro, Mar-2026). The company transparently distinguishes GAAP earnings from adjusted growth. To watch: the execution of the new leadership.

• The structural decline of the linear networks (affiliate fees and advertising −12% a year) dominates the market narrative, which extrapolates the melting of cable to the entire company and ignores that Experiences and streaming are the real value.
• GAAP net income has been distorted in both directions over the years (the +152% jump in FY2025 is tax-driven, not operational), which muddies the P/E-based reading and scares off the buyer who looks at the headline.
• Domestic park attendance fell 1% in FY2025 and international tourism weakened, feeding the fear of a cyclical peak in the crown jewel.
• The doubt over streaming's durability: Disney+ is only recently profitable and Netflix's competition limits pricing power, so the market does not yet pay it the multiple of a growth platform.

The discount is one of perception: the market penalizes all of Disney for linear's decline —which is real but is a fraction of the value— while the irreplaceable intellectual property, the crown jewel of the parks, and streaming's inflection keep compounding. At ~$108 and ~14× operating income, the business is not given away, but it trades at a reasonable price for a franchise of this quality.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -4%/year (-18% total): the margin of safety protects the downside. The bull (+14%/year, +91% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Decline of the linear networks. Cable affiliate fees and advertising fall at a double-digit rate with cord-cutting; if linear melts faster than streaming compensates, operating income stalls.
• Streaming durability. Disney+ is only recently profitable and Netflix's competition limits pricing power; if subscriber growth slows or the margin falls short of the guided ≥10%, the improvement thesis loses its engine.
• Parks cycle. Domestic attendance (already −1%) is sensitive to recession and to international tourism; large capex (cruise ships, expansion) right before a slowdown would penalize the crown jewel.
• ESPN dilution and costs. The agreement with the NFL lowers Disney's stake in ESPN from ~80% to ~72%; sports rights (the largest cost) rise, and the transition from linear to direct-to-consumer is uncertain.
• Succession execution. Josh D'Amaro took over in March 2026 after years of failed succession attempts; the risk is execution by the new leadership in a business undergoing transformation.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 9% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 3.0 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 8% (EBIT/EV) + ROIC 9% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -4% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -6%/yr, bull-scenario ceiling +12%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, switching costs, network effects → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -4%, within what we project (5%) — the story squares with the numbers.