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March 10, 2006

Pixar's Earnings Give Disney A Boost

Disney (DIS) continues to act better than any other mega cap media stock. I think there are three reasons behind the good action. First, Bob Iger has clearly laid out a content driven strategy and acted to make it happen by divesting radio and acquiring Pixar (PIXR). Second, all of DIS's divisions will be growing in sync beginning in the June quarter driving the fourth consecutive year of double digit growth. Third, the halo effect of bringing PIXR and Steve Jobs aboard is exciting investors. The strategic coherence implied by these factors is not evident at any other large cap media company at the moment. I expect DIS to continue to be the best performing stock in the large cap group.

Speaking of PIXR, yesterday the company reported better than expected December quarter earnings. I did not listen to the conference call but numerous analyst reports indicated that Steve Jobs said this would be the company's last earnings report as an independent company. DIS has talked of a summer closing to the deal. I guess late June must be the target now, probably June 30th to make the financial reporting easier to digest....

PIXR beat estimates across the board with higher than expected revenue and lower than expected costs. While the variance was only in the millions of dollars, DIS investors can take heart, especially in the revenue performance. PIXR is still able to drive revenue from its library long after its films have left theatres and well past the initial DVD sales and rentals. In the most recent quarter, Finding Nemo outperformed in TV licensing and DVD sales, The Incredibles outperformed in consumer products and DVD sales, and Toy Story and Toy Story 2 outperformed in DVD sales. As a DIS long, it is nice to see that the library I am acquiring has enduring value.

I remain long DIS in all client and personal accounts with a target in the low $30s.

Posted by Steve Birenberg at March 10, 2006 11:41 AM in SBTV