About the paper
The paper is commissioned to conduct an analysis of the recent 10K statement of Procter and Gamble(P&G) and Disney with the objective of framing a prudent rationale for investing in the stock of these companies. However, with the purview of attaining comprehensive vision related to the analysis, we will also refer to analyst reports of these two stocks and will align the outcome with the economic and federal reserve data as whether it is an appropriate time to take a position in equities.
Company Analysis: P&G
During 2015, the company faced tough business environment and witnessed a 5% decline in the sales figure compared to the previous year. Most importantly, the entire percentage decrease came from the International markets, where the sales figure went down from $52.2 million to $48 million, while US sales figure stood constant at $28.3 million. However, following a meticulous analysis of the MD&A section of the document, we found that the management of the company concerns the decline in the revenue figure towards the negative impact of foreign exchange fluctuations and also for higher prices in international markets
The impact of decrease in the revenue figures was visible on the profit margins also, as even under the controlled proportion of cost of goods sold(to percentage of sales), gross margin of the company declined by 0.10%, however, it was the operating margin that was significantly defected. The MD&A section exclusively declares that it was because of the lack of control on the operating cost and foreign exchange that eroded the operating margin of the company from 18.3% to 15.5%. Most notably,while the operating costs were higher by 3.44%, it was the tax charge of $2.1 billion related to the deconsolidation of Venezuelan subsidiary that contributed in a significant manner towards fall in operating as well as net income during 2015. During 2015, the net income of the company declined by 21% and slumped to $8.9 billion, negatively affected by lower revenue figures, tax charges on deconsolidation of Venezuelan Subsidiary and depreciation of certain key currencies against the U.S. dollar, primarily in Russia, Ukraine, Venezuela and Argentina.
-Analysts View
Company Analysis: Disney
During 2015, services segment continues to dominate the revenue stream for Walt Disney accounting for 84% of the total revenue of the company. In addition, while the product segment did not witnessed any growth in the sales figure, service segment registered a sustainable growth of 9.06% during the year.
Another aspect that worked in favor of the company is the controlled cost of sales and operating expenses. Important to note, during 2015, Walt Disney generated additional sales with lower percentage of operating expenses relative to sales figure. This gave a great push to the operating income, which surged by 14.59%. This, along with an equity in the income of investees worth $814 million resulted in a 11.74% increase in the net income figures.
However, the most notable item in the SEC 10K document was the consistently increasing repurchase activity. During 2015, the company repurchased stocks worth $47204 million,a 14.82% increase compared to the previous year. Of the total repurchased stock during 2015, around $2.5 billion worth of stock was purchased in September, 2015, after the company’s stocks plummeted by 20% amid fears of subscriber loss for ESPN network. Even the CEO of Walt Disney, Bob Iger, has confirmed that the entity will continue to repurchase their stock in 2016.
Ironically,despite of strong financial performance and high repurchase activities, which indicates towards the management’s confidence in future success, the stock of the company has fallen around 11% on year-to-date performance followed by a downgrade rating issued for the stock by Barclays Capital on account of confirmation of subscriber loss for ESPN and other premium spots.
-Analysts View
Federal Reserve view on equities
While the Federal Reserve do not disclose data exclusively on equities, however, in a report released in June, 2016, Federal Reserve has reported that the value of directly and indirectly held corporate equities decreased $160 billion during the first quarter of 2016. In addition, in an independent report released by CNN for the US economy confirms that the investors should only expect 5-6% return from stocks during 2016 as the volatile price in oil and upheavals in China will continue to disrupt the market.
Conclusion
It is evident that both the stocks that we analyzed shows a good growth potential, but considering the overall economic sentiments for the equities, the investment should only be made on long-term basis only.
References
(2016). Financial Accounts of the United States. Federal Reserve Statistical Release.
Analyst Opinion: Procter and Gamble. (n.d.). Retrieved July 23, 2016, from Yahoo Finance: https://in.finance.yahoo.com/q/ao?s=PG
Analyst Opinion: Walt Disney. (n.d.). Retrieved July 23, 2016, from Yahoo Finance: https://in.finance.yahoo.com/q/ao?s=DIS
Egan, M. (2015, September 11). Disney bought $2.4 billion of its own stock during market freakout. Retrieved July 23, 2016, from CNN: http://money.cnn.com/2015/09/11/investing/disney-bought-stock-media-espn-star-wars/
Long, H. (2016, February 8). Can U.S. stocks still return 5% in 2016? Retrieved July 23, 2016, from CNN: http://money.cnn.com/2016/02/08/investing/stock-market-return-2016/
Motley Fool. (n.d.). What Bob Iger Says About Walt Disney's Buybacks -- and What He Should Be Saying Instead. Retrieved July 23, 2016, from http://www.fool.com/investing/general/2014/10/09/what-bob-iger-says-about-walt-disneys-buybacks-and.aspx
Pelts, S. (2016, January 29). Disney to Continue Share Repurchase Program and Increase Capex. Retrieved July 23, 2016, from http://marketrealist.com/2016/01/disneys-business-segments-expectations-fiscal-2016/
Procter and Gamble. (2016). SEC 10K. Procter and Gamble.
Walt Disney. (2015). SEC 10K-Walt Disney. Walt Disney.
