Walt Disney: The Magic of Television

These days, the magic of Disney lies in its television networks. The company's profits are climbing, largely because of rising subscriber fees at ESPN and increased advertising revenue at ABC, parent network of the hit primetime shows Desperate Housewives and Lost.

The Walt Disney Co. (symbol DIS) reported earnings for the quarter ended March 31 of 37 cents a share, 19% higher than the year-ago period -- and well above Wall Street's forecast of 31 cents per share. But the Burbank, Cal., media conglomerate reported lackluster sales during the quarter, mainly because of weak performance in its movie segment. Revenues grew a scant 3%, to $8 billion, missing analysts' sales estimates of $8.2 billion.

Despite the sales disappointment, Disney's share price has risen nearly 5% since the earnings announcement, to a 52-week high of $30. Analysts who raised price targets included Credit Suisse's William Drewry, who believes the shares are worth $41. "We believe that Disney is among the best positioned media companies long-term due to its domination in the two major content 'power alleys' of sports and family entertainment," Drewry told clients. He added that "strong shorter term earnings prospects should drive the stock higher." He reiterated an "outperform" rating for the stock and raised earnings estimates for the 2006 fiscal year ending in September from $1.39 to $1.50 per share. At $30, Disney's stock trades at 20 times Drewry's estimate.

Disney is probably best known for its theme parks, as well as its famous characters, which include Mickey Mouse, Winnie the Pooh, and the Muppets. Other segments of the company include films, television networks, and consumer products. Income for Disney's media networks unit jumped 20% in the January-through-March quarter. The company's theme-park division experienced a 7% gain, boosted by Disney's 50th anniversary festivities. During a conference call Tuesday, chief financial officer Thomas Staggs said he didn't expect higher prices at the pump to have a "meaningful impact" on theme-park attendance this summer.

Revenues at Disney's movie division were down 22% during the second quarter versus the year-earlier period. The company, which completed its purchase of studio partner Pixar this week, is optimistic about its summer film lineup, which includes the June release of Pixar's animated movie Carsand a later release of a sequel to Pirates of the Caribbean.

During the conference call, the company's chief executive officer, Robert Iger, added that Disney would continue to experiment with new business models in its media division. Disney was the first network to sell downloads of primetime television shows through Apple's iTunes store. Earlier this month, the company began offering streams of several ABC shows online for no charge.

--Katy Marquardt