business line analysis and sum-of-the-parts

This is mostly a reply to reader Alex’s comment on a post from early 2017 about Disney (DIS).

The most common, and in my opinion, most reliable method securities analysts use to project future earnings for multi-business companies is doing a separate analysis for each business line.  This effort is aided by an SEC requirement that such publicly traded companies disclose operating revenues and profits for each line of business it is in.

In the case of DIS, it’s involved in:  broadcast, including ESPN; movie production and distribution; theme parks and resorts; and sales of merchandise related to the other business lines.

There is plenty of comparative data–from trade associations, government bodies and the financials of publicly traded single-business firms–to help with the analysis.  And every company has, in theory at least, an investor relations department that answers questions put to it by investors. ( My experience since retiring as a money manager for institutional clients is that many backward-thinking well-established companies–DIS and Intel come to mind–can be distinctly unhelpful to their most important supporters, you and me.  (To be fair, I haven’t spoken with DIS’s IR people for several years, so they may be better now.))

Analysis consists in projecting revenues/ profits for each business line and using the results as the key to constructing a series of whole-company income statements–one each for this year, next year and the year after that.

The trickiest part is to decide how to value this earnings stream.  The ability to do this well either comes with experience or from having worked for a professional investor who’s willing to teach.


More tomorrow, or in a day or two if I don’t get my film editing homework done today.




Marc Faber says stocks are going up–a bullish sign

who is Marc Faber?

I first encountered Mr. Faber when I began studying the Hong Kong market in 1985.  He was an early practitioner in that market of what one might call the “infotainment” wing of the institutional brokerage business (something that has now morphed, in a much less sophisticated form, into the financial channels on cable TV and radio).  

Mr. Faber was/is perpetually bearish.  That’s his stock in trade.  When I knew of him, he would prepare reports and make presentations to institutional clients, always arguing that a devastating financial collapse was imminent and that one should sell both stocks and bonds.

He was apparently a witty and intelligent debater.  Institutions would invite him in to present as part of their general due diligence process.  They’d listen, poke holes in his arguments, breathe a sigh of relief that the bear had no claws–and pay him, or the brokerage firm he might be working for, large amounts of commission dollars for his services.

Had you followed his advice to the letter, you would presumably have been in cash for at least the past thirty years.  …or maybe you would have held gold bars in a vault in your basement.

he’s always bearish…

He has a very strong financial incentive to stay in character.  That’s what gets him on TV and radio., That’s what sells his newsletter.  If he says anything bullish, he risks being reclassified into the general category of investment strategists–where he’d be just one of a gazillion people trying to time the markets.

…except for right now.  

If you go to a car dealership and the salesman tells you a certain car is a spectacular machine and a great buy, you have no information.  That’s what he’s supposed to say.  If, on the other hand, he tells you not to buy now but to wait for lower prices in three weeks, you may have useful data..

The Faber prediction is just like that–except that a guy who earns money by being perpetually bearish is, at least temporarily, bullish.  

This probably means that markets are going up for  a while.

My take on the markets in Current Market Tactics tomorrow.