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'Frozen' Heats Up Disney's Third Quarter; Shares Fairly Valued

Disney is a high-quality business, but we'd wait for at least a 10% discount to our fair value estimate before getting excited about investing, says Morningstar’s Neil Macker.


 Disney (DIS) posted another strong quarter, with results coming in slightly ahead of our forecast for fiscal 2014. Our $84 fair value estimate and wide economic moat rating stand. While impressed by the execution, we would prefer a wider margin of safety in the share price before investing.

Third-quarter revenue grew 7.7% over last year to $12.5 billion, slightly above our estimate of $12.2 billion. EBITDA increased 13.5% to $4.0 billion, above our $3.7 billion estimate. The EBITDA margin widened to 32.0%. The strong quarter posted by the studio entertainment segment drove the majority of the upside surprise, as the segment continues to reap the benefits of "Frozen." Studio entertainment produced 13.6% revenue growth, well above our flat estimate.

Neil Macker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.