Important disclosures appear on the last page of this report.

The Henry Fund

Henry B. Tippie College of Business

Cooper LaRue [cooper-larue@uiowa.edu]

The Walt Disney Company (DIS) Oct. 4, 2020

Communications Services- Media & Entertainment Stock Rating Buy

Investment Thesis Target Price $150-160 The Walt Disney Company is a household brand in video content and park entertainment worldwide. We believe this market positioning will improve as Disney expands its global footprint by creating content targeted at international markets and further translating existing content. We also believe Disney is well positioned to become a top contender in streaming services with their recent launch of Disney+, coupled with their 67% ownership in Hulu after acquiring 21st Century Fox last year. We recommend a buy rating with a price target of $150-$160, implying a 27% upside. Drivers of Thesis

• We are forecasting a 7% 4-year CAGR in international media and studio markets as Disney has started focusing on content specifically for international populations, mainly in the Asian Pacific region.

• With the acquisition of 21st Century Fox last year, Disney now has one of the strongest libraries of content that will allow them to compete with Netflix leveraging Disney+, ESPN+ and Hulu.

• As emerging markets further develop, we expect demand for more Disney theme parks just like we have seen in Shanghai, leading to continuous 5% growth in their parks & entertainment division for the next 5 years.

Risks to Thesis

• Disney’s ability to create adult focused content has not been proven, and they will need to create content for this demographic to keep consumers re subscribing to Hulu and Disney+.

• The prolonged effects of COVID-19 could force Disney to take on more debt to cover fixed costs on their parks as well as create lasting effects on consumers confidence in spending money on vacations.

Henry Fund DCF $168 Henry Fund DDM $115 Relative Multiple $139 Price Data Current Price $122 52wk Range $79-153 Consensus 1yr Target $136 Key Statistics (*5Y Avg.) Market Cap (B) $232 Shares Outstanding (M) 1,807 Institutional Ownership 66% Beta 1.14 Dividend Yield 0% Est. 5yr Growth 4.4% Price/Earnings* 17.60 EV/ EBITDA* 12.30 Price/Sales* 3.38 Price/Book* 3.40 Profitability (*5Y Avg.) Operating Margin* 23.5% Profit Margin* 17.1% Return on Assets* 10% Return on Equity* 20.9%

Earnings Estimates Year 2018 2019 2020E 2021E 2022E 2023E

EPS HF Est.

$8.40 $8.40

$6.27 $6.27

($1.17) ($1.10)

$1.96 $.95

$4.32 $3.28

$5.05 $5.33

Growth 47% (25%) (118%) 186% 246% 63%

12 Month Performance Company Description

The Walt Disney Company is an international entertainment company whose brand recognition and cultural impact is second to none. Company segments include cable networks, production studios, theme parks, resorts, cruise lines, merchandise and streaming services. Revenues are 72% concentrated in North America but recent theme park expansion in China and Japan are diversifying Disney’s graphical presence.

19.6

15.018.1

34.6

9.9 10.4

0

10

20

30

40

P/E Net Margin % EV/EBITDA

2019 Metrics

DIS Competitors

-50%

-30%

-10%

10%

30%

S O N D J F M A M J J A

DIS S&P 500

Source: Yahoo Finance

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COMPANY DESCRIPTION

Founded in 1927, The Walt Disney Company has remained a staple in Media and entertainment worldwide. Their characters and stories are household names and have had cultural impacts on all of us. Disney’s operations include Media Networks, Parks & Experiences, Studio Entertainment and Direct-to-Consumer. Disney’s media networks and parks are currently 72% of revenue and have always been core to their business. Disney also consistently produces some of the best performing movies every year from their studio entertainment division which accounts for 16% of revenue. The smallest, but quickest growing, segment is their direct-to-consumer business which now includes revenue from Disney+, ESPN+ and their 67% ownership of Hulu. Below is a revenue decomposition and further detail about the revenue segments of Disney.

Media Networks

The Media Networks segment includes cable and broadcast television networks, television production and distribution operations, domestic television stations, radio networks and stations. Notable network brands include Disney, ESPN, Freeform, FX, National Geographic and 50% equity ownership in A&E T.V. Disney also owns ABC broadcasting networks, Twentieth Century Fox and Fox 21 Television Studios.

Revenue from this segment is derived from advertising and leasing content to other distributors such as Netflix and Amazon Prime Video or other programing networks.

We forecast relatively low growth in this segment with domestic markets at 3% growth for the foreseeable future, but international expansion growing at 7.5% CAGR for the next 4 years and declining to 2% growth in 2028. While domestic media network markets are saturated, Disney has grown internationally through added foreign content and further translation into more than 30+ languages, driving viewership in emerging markets.

Parks & Experiences

Parks and Experiences have always been core to Disney’s brand. This includes iconic vacation spots like Disneyland, Disney World, Disney cruise lines, Disneyland Paris, Hong Kong Disneyland, Toyko Disneyland and most recently opened in 2016, Shanghi Disneyland. In total, Disney owns 13 theme parks worldwide.

Revenue from these parks comes mostly from ticket revenue and additional in park experiences. Due to COVID, most parks were closed for a large portion of 2020. Most of their parks are now open, but attendance is low due to significant capacity restrictions and people worried to travel. Disney saw 85% drop in park revenue in their fiscal Q3 (April-June 2020) but is starting to see that slowly rebound as some parks reopen and it seems like customers are getting more comfortable being out in public. In the U.S., Disneyworld in Florida is open with restrictions, but Disneyland in California is not, and likely won’t until mid-2021.

We believe low park attendance will continue for the remainder of 2020 and all of 2021. We forecast just 2% and 4% growth for domestic and international revenues respectively in 2021 after this 40% decline in fiscal year 2020. We forecast that revenues will rebound to pre COVID levels by mid-2022 with moderate 4% CAGR growth the 4 years thereafter before slowing to just 1% growth in the continuing value year in 2029.

Studio Entertainment

Disney owns some of the most beloved video producing brands in the world such as Walt Disney Pictures, Pixar, Marvel, Blue Sky Studios, Twentieth Century Fox and Lucasfilm. This segment also includes Disney’s live theatrical shows.

Revenue comes from theater ticket sales, licensing content to networks and consumer purchases of physical or digital

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copies of the content. In fiscal 2020, we expect Disney to see an 15% decline in studio entertainment revenue due to loss of theater ticket sales and some production delays.1 Going forward we forecast moderate 5% annual growth for 2021 with full revenue recovery by 2023 and stable 3% growth thereafter. Disney consistently releases top producing movies and we believe that will continue, but only lead to low growth as this level of video production is expected from Disney every year.

Direct-to-Consumer

Disney’s Direct-to-Consumer segment is currently only 13% of revenue but holds the most potential to grow. This segment includes new revenue streams such as Disney+, ESPN+ and Hulu. Disney+ and ESPN+ were released in November 2019 and Disney now owns 67% of HULU after their acquisition of 21st Century Fox in March 2019. This streaming service distribution strategy has always been a threat to Disney until now, where they control their own platform rather than licensing content to Netflix. This segment also includes revenue from video game production, which is a relatively small portion of revenue.

Driven by the release of Disney+, this segment saw a 204% increase in revenue in 2019 and is on pace for a 55% increase in 2020.1 Disney+ currently has 60 million subscribers and we expect them to add 25 million over the next 2 years. At $7 PMPM that would add $2.1 billion in revenue. We believe this will be the key to Disney’s growth and margin expansion going forward with 15%-20% CAGR revenue growth over the next 3 years, and declining growth thereafter once they are established in the market.

Below is a graph comparing our revenue growth rates for each of the described revenue segments.

Margins

Historically Disney has been able to operate at roughly a 17% net margin but that then went negative in 2020 and we forecast to be just 3% in 2021. Cost of sales has historically been 55% of revenue and we expect this to increase over time as they invest more into streaming and international markets. We forecast Disney’s cost of revenue to increase to 64% in 2020-2021, as Disney will still have many fixed costs associated with parks they must pay while attendance declines.

SG&A expense is their second largest expense at roughly 16% of revenue historically but that increased to 21% in 2020 again due to fixed costs withing SG&A. We forecast this to drop to 18% in 2021, 17% in 2020 and then hold constant in 2023 at 16% which is in line with historical.

Overall, we are expecting net margin to partially recover after 2023 up to 13% but this is still well below their historical average of 17%. This is due to increased costs in creating content and added interest payments on debt. Over time, this will slowly increase as Disney pays down the principal on debt and stabilizes their investment in streaming services.

Brand

Disney is truly a one-of-a-kind business with nearly a 75-year history of cultural impact. While Disney does have competitors in each of its segments, no other company has all four revenue streams (Networks, Parks, Studio and DTC) for consumers to associate with each other and work as one to create brand strength. Disney is consistently in the top five most admired companies in the world and came in at fourth behind Apple, Amazon and Microsoft in 2020 according to Forbes yearly survey.2 We believe that Disney is better positioned to monetize its brand through streaming services in the future while park and studio segments simultaneously continue to outperform. This brand creates a mote around Disney that we think will only strengthen as their global footprint expands.

ESG Analysis

Disney has taken firm action to reduce carbon emissions, use sustainable energy, create an inclusive work environment and create positive social change on the world. From 2012-2019 Disney reduced their carbon emission by 47% worldwide. They have also built a 270-

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acre solar farm that provides the power needed for half of the theme parks in Disneyworld.3

They have also taken aggressive initiatives to reduce waste in their parks, but this would likely still be considered a negative by most, due to the massive amounts of waste produced from Disney parks. It is also not clear how Disney suppliers treat workers in emerging markets where their merchandise is produced.

Overall, we would rank Disney as doing average in terms of ESG, but this opinion is extremely subjective as there is no universal way to compare ESG ratings across companies.

RECENT DEVELOPMENTS

Disney is not a company that has had any drastic changes in revenue segments for the past 75 years but that is beginning to change. Since formation Disney has focused on two things, movies and theme parks. Now with the rise of streaming services, Disney realized they needed to compete in the space or else their content would be hindered by its outdated distribution channels and their licensing contracts would essentially be set by Netflix as they would have all the pricing power.

This realization lead to the acquisition of 21st Century Fox and the release of Disney+ in 2019. The launch of Disney+ in November 2019 was good timing as unanticipated COVID was right around the corner and has likely helped Disney gain subscribers who have been quarantined at home.

COVID-19 Impact

The severity and duration of COVID-19 worldwide will have a direct impact on every segment of Disney’s business. Parks and experiences make up 37% of revenue which were all closed at some point this year and some are still closed. Disney’s studio entertainment is also hurt by lack of customers in movie theaters to drive box office revenue. Disney reported in their fiscal Q3 which ends June 27th that they lost $4.72 billion due to the pandemic. This contributed to Disney posting their first quarterly loss in two decades.17

Another negative is that COVID-19 has caused a softening in advertising markets where Disney makes revenue on their broadcasting networks. If this continues, and a slow economic recovery is seen, we would be concerned about

Disney’s ability to find strong advertisers across their T.V. networks.

The one segment where COVID-19 is likely helping Disney is with their direct-to-consumer streaming services. With Disney+ just being released in November 2019 and COVID-19 heavily impacting the U.S. not far after it is hard to correlate any specific increases in subscriptions to COVID-19, but we believe it has been a helpful driver.

Finally, Disney wrote down $5B in goodwill and intangible assets due to the effect COVID-19 has had on the book value of their 21st Century Fox assets recently acquired. They believed that the remaining FCFs of these assets were not in line with the recognized book value any longer.6

28,000 Layoffs

On September 29th Disney announced they were laying off 28,000 employees assigned to their Disneyland theme park in California after state legislators indicated that the park must stay closed for the foreseeable future. These 28,000 employees had been furloughed since April. They were receiving little to no pay, but still had all health and other employee benefits costing Disney millions each week.

Disney made sure to note that the layoffs were directly correlated to legislators strict social distancing laws. Disney World in Florida has been open since July with restrictions and this has allowed them to avoid any widespread layoffs in Florida. They also have parks open in Japan, France and China. We believe that these layoffs are necessary to reduce cost and acted more as a statement to the California government that Disney won’t keep paying furloughed employees indefinitely if the state won’t allow them to open. It then transfers those now unemployed persons benefits to the state and federal level. It also puts pressure on the state as Disney says roughly 80,000 local jobs are dependent on the park’s visitors, many of which outside Disney’s employment.17

Disney +

In November 2019 Disney released Disney+ so they can own the distribution of their content. While previously Disney was at the heels of Netflix to distribute their content, now Disney is in a position to take all of their content off Netflix once the contracts expire and compete against them. Now that Disney also owns 67% of Hulu,

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Disney+ and Hulu can offer a bundle which includes both for a discounted price.

Below is a chart comparing the prices of each service along with the number of subscribers each currently has.

Acquisition of 20th Century Fox

On March 20, 2019, the acquisition of 21st Century Fox was finalized. Rumors of this acquisition first came about in late 2017 and after 18 months the deal was done with Disney for $69.5 billion.7 Here is what they got:

1. 21st Century Fox 2. 20th Century Fox 3. Fox Searchlight 4. Fox 2000 5. Blue Sky Animations 6. Fox Sports Stations 7. National Geographic Holdings 8. 30% of Hulu (Disney already owned 37%)

This acquisition, as are all acquisitions in the space was for one thing, content. Disney knew they were going to fall behind in line to Netflix if they did not have majority ownership of their own streaming service and they felt like the content just from Disney was not enough.

It is important to note that Disney also acquired Marvel in 2009 but it did not get full access to past and future content rights. Some outstanding Marvel characters such as Deadpool, Fantastic Four and X-Men were still owned by Fox which Disney now has.8

Now with a library of Disney, 21st Century Fox, Pixar, Star Wars, ESPN, National Geographic and Marvel, we believe Disney+/Hulu is positioned to obtain a subscriber base comparable to Netflix.

Disney financed this acquisition through a mixture of cash stock. They paid $35.7 billion in cash, $21 billion of which came from a debt offering, and then paid $33.8 billion in Disney shares at $110 per share.1

Recent Earnings Announcement

Disney’s last earnings call was on August 5, 2020. Shares rose 8.6% after stronger than expected revenue and EPS for the quarter. The closure of parks and theaters caused steep declines in those segments but direct-to-consumer through Disney+ and Hulu came in strong as expected. The surprise came from their Broadcasting segment whose revenue came in at $2.53B when the street was predicting $2.2B.

Disney had a big beat on EPS coming in at $0.08 vs the forecasted ($0.61). Disney noted that they estimate lost operating income of $3.5 billion in Q3 due to COVID-19. This was expected and did not provide any specific revenue guidance going forward.

INDUSTRY TRENDS

Disney has always done a great job at adjusting content according to consumer preferences, but the company’s distribution strategy has had very little change in 20 years. Until the rise of streaming services, Disney has always distributed content through traditional mediums of Cable, DVDs and theaters but that is quickly changing. Another trend is the consistent desire consumers have for theme parks and live entertainment where Disney dominates the market.

Streaming Services

Streaming services have completely changed the way video content is distributed to create a more streamlined and convenient user experience. After Netflix began dominating the market in 2007, other players such as HBO Max, Amazon Prime Video, Hulu and most recently Disney+ have also come to fight for the market. Rapid adoption in the U.S. has led to these companies investing billions in content rights and the creation of original content.

In 2015, just over half of U.S. households had at least one subscription service compared with 2019 at 74%.9 This rapid penetration has led to companies doubling down on their content to secure market position. Luckily for those

Monthly

Standard

Monthly

Premium

Subscribers

(M)

Netflix $8.99 $15.99 182

Amazon Video $8.99 $12.99 26

HBO Max 43

Hulu $5.99 $11.99 30

Diseny+ 55

Hulu & Diseny + 85

CBS All Access $5.99 $9.99 4

$14.99

$6.99

$12.99

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services like Amazon Prime Video and Disney+ that are newer, this market is not a one service wins all. Roughly 70% of all people who use streaming services have more than one subscription.10

We believe this is good for Disney+ as their content is relatively niche with mostly kid’s content. Disney+ may not be a household’s primary video service for adults but any household with kids will likely opt in. Then households can also add Hulu for more teenage and older content.

Parks & Experiences

Theme parks have always been one of peoples first choices for vacations as parks have become larger, more extravagant and more immersive. Disney is overwhelmingly the largest player in this space owning 13 of the top 25 theme parks worldwide. Coming in second is Universal Studios with 4/25 top ranked parks in the world by annual attendance.11 Disney also holds the top 4 positions with Disney Magic Kingdom, Disneyland, Toyko Disneyland and Toyko DisneySea.

Growth has been steady at 3%-5% per year across the worlds top 25 parks and we expect this type of growth to continue once COVID-19 passes. We do not believe that theme park growth will be what materially drives the stock price as most analysts also assume this rate of steady growth over time but this segment is a staple to the Disney brand and is relatively profitable at 39% operating margin in 2019.1

COMPETITORS

While Disney is truly in a league of its own as a whole company, it still has competitors that compete against every segment of their business separately. Most of the content producers focus on just content and distribution, while Disney also has their parks and entertainment divisions. Most other content producers have not invested into parks with the exception of Comcast with Universal Studios. We believe Disney’s key competitors are Comcast NBC, Charter Communications, Viacom CBS, AT&T (Time Warner) and Netflix.

Comcast NBC (CMCSA)

Comcast is Disney’s closest competitor as they have very similar lines of revenue and relatively the same footprint. Comcast’s revenue segments include Cable Networks,

Broadcast Television, Filmed Entertainment, Theme Parks and Sky segments. Notable brands include Xfinity, NBC, Universal Pictures and parks, DreamWorks Animation and Sky Sports.

Of these segments, 58% of their revenue comes from their internet service division, 12% from their cable networks, 10% from broadcast networks and 7% from parks.13

We believe that while Comcast will continue to produce desirable content, their distribution methods are outdated. Cable and broadcasting revenues have been slowly declining as streaming services have become preferred by most Americans and while Comcast does have Xfinity Instant TV, it has not gained much traction.

Charter Communications (CHTR)

Charter Communications is primarily an internet service provider and cable network provider who owns the Spectrum brands for internet, cable and T.V. They have historically owned significant means of distribution that companies like Disney and other content producers would have to license to for distribution. Previously Disney and Charter Communications have worked together to distribute content through their cable networks, but this is becoming less important over time and therefore we do not see Charter as a strong competitor.

Viacom CBS (VIAC)

Viacom and CBS were both media companies whose channels and shows have been enjoyed for decades. They operate a number of channels under the CBS brand including sports, news, daytime T.V., late night T.V. and movies. These two companies merged in 2019 so they could be better positioned to compete with Disney, Netflix and Comcast. However, it is not clear if this merger will be able to get them into the same league as their competitors. Viacom CBS is one tenth the size of Disney and Netflix and we do not think their content is strong enough to be a stand-alone service long-term.

Viacom CBS was an early mover on streaming content with CBS All Access which launched in 2014. This contains all their content and live stations. However, the big difference between them and Disney is CBS still licenses their content to other services. CBS content is on Netflix and Hulu whereas Disney is pulling all their content from Netflix to exclusively be on Disney+. This indicates that CBS content

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alone is not a strong enough library to be a stand-alone product and therefore, will continue to be dependent on other means of distribution. We could also see them being acquired by Comcast or Charter Communications in the future.

AT&T/ Time Warner (T)

AT&T acquired Time Warner for $85.4 billion in 2019 after a controversial case by the Department of Justice noting that this acquisition would give AT&T too much pricing power. They claimed it would also incentivize AT&T to provide slower internet service to networks who were competitors of Time Warner. After some delay, it was approved, and the deal was done 3 days later.

Time Warner’s brands include HBO, CNN, Adult Swim, Cartoon Network, TNT, truTV, TBS along with their production studio. HBO has very desirable content such as Game of Thrones and The Wire, but these are one off shows and we do not think the overall content they produce is superior over Disney, or any other producer. HBO has their streaming service offering but has not seen significant growth like Netflix, Hulu and Disney+, we believe due to lack of unique content.

Netflix (NFLX)

Netflix is the clear competitor regarding Disney’s number one growth segment, streaming. Currently 60% of all U.S. households have a Netflix subscription with 193 million subscriptions worldwide.14 Netflix has been able to create unique and desirable content that keeps customers entertained and renewing their subscriptions. We believe that while Netflix and Disney+ will be direct competitors, there is room for both in the market and consumers will have both. We believe households will have Netflix for teenage and older content and Disney+/ ESPN+ for kids/ sports content.

Valuations and Ratios

Each of Disney’s competitors are very different in their operations, distribution and content and we believe Disney is well positioned among them from an operational standpoint as well as a valuation one. Below are some key valuation metrics from 2019 for comparison. We choose to use 2019 data as the most recent Q2 2020 data is so

poor it would be hard to interoperate their relative value given some negative earnings.

Source: Factset

We believe Disney is undervalued compared to their competitors and deserves a much higher valuation given their growth potential with Disney+ and international growth. We believe once Disney+ gains more traction it will be valued more like Netflix, rather than Comcast. Disney is also doing the best job of operating efficiencies as reflected in the 15% net margin which is best in class.

ECONOMIC OUTLOOK

We believe there are two key economic factors that have material affect on Disney’s revenue. Consumer sentiment, and disposable personal income and interest rates.

Consumer Sentiment

Consumer sentiment drives how people either spend their money in the economy, or save it for potential hard times. If consumer sentiment is low it is very unlikely that people will spend their money on vacations, consuming additional content or purchasing a new streaming subscription.

For this report I chose the Michigan Consumer Sentiment Index (MCSI) over the Consumer Confidence Index (CCI) because the MCSI focuses more on ones personal financial well being and we believe is a better indicator of how people would spend money on extras, like vacations or entertainment.

Consumer sentiment was relatively flat from 2015-2020 until the COVID outbreak. The consumer sentiment index dropped from 101 in February to 71.8 in April.16 It then ticked up slightly in June but is now just slightly higher than its April low. We believe that this index will gradually rise to normal levels as soon as COVID-19 is over, and all social distancing restrictions are removed. However, this could be more than a year away.

- MCap (B) P/E Net Margin EV/EBITDA ROE

Disney 232,443 19.6 15.0% 18.1 15.2%

Comcast 206,752 15.9 12.0% 9.1 16.9%

Charter Comm. 128,113 65.1 3.6% 11.2 4.9%

Viacom CBS 18,729 7.8 11.8% 2.7 40.8%

AT&T 206,100 20.6 7.7% 8.1 7.5%

Netflix 207,260 78.3 9.3% 12.9 29.1%

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Below is a chart showing the steep drop after February where it went from 101 to 71 in two months and little recovery since.

Disposable Personal Income

Disposable personal income is the amount of money a person has left over after taxes and all necessary expenses such as living, insurance and healthcare. Disposable income can be spent on things people enjoy and is an indicator of the funds people have available to spend on vacations, going to movies and video entertainment which all benefit Disney.

Although we have seen record unemployment, disposable personal income has remained high around $15,000 for the average U.S. adult and recently spiked up in April due to the $1,200 stimulus check. Before that, only a slight decline of less than 1% was seen in March 2020.15

We do not expect any significant drop in this metric because government intervention is filling in the gaps of lost income for the most part, leading to only minor lifestyle spending changes for most people. This view could change if the effects of COVID are longer than expected or the government cuts back unemployment benefits.

Interest Rates

Interest rates have a major effect on the interest payments Disney will be paying, as roughly one third of their $54 billion in long term debt is on a floating interest rate. Currently the 10-year treasury is at .704% and we do not

forecast this will change much in the next 12-18 months. In the long term we do think rates will go up to the target rate around 3-4% but by then Disney will be able to pay down much of their principal so we do not think any change in interest rates will make a positive or negative impact on Disney’s valuation.

VALUATION

Revenue Assumptions

Disney’s revenues come from four key segments.

Media Netowrks: Disney, ESPN, Freeform, FX, National Geographic and 50% equity ownership in A&E T.V. Disney also owns operates ABC broadcasting networks, Twentieth Century Fox and Fox 21 Television Studios

This segment has historically grown at around 2%-5% annual growth and we are forecasting for that to continue in the U.S., however we are forecasting stronger growth internationally at 7% annually for the next 4 years before slowing to a growth rate of 1% in the continuing value year in 2029. This international growth is from early signs of growing interest in Asian markets and Disney’s efforts to translate their content into more languages.

Parks & Entertainment: Includes Disney’s 13 theme parks worldwide.

Disney’s park revenue was growing at a very healthy 5-8% annually until the COVID pandemic where they instantly lost 75% of theme park revenue in one quarter. We are forecasting that U.S. parks will remain closed for the rest of 2020 and into 2021 with parks reopening mid 2021. We are then forecasting a strong recovery back to pre COVID level revenue by late-2022 and then 5% growth thereafter until the continuing value year in 2029 at 1% growth.

Studio Entertainment: Walt Disney Pictures, Pixar, Marvel, Blue Sky Studios, Twentieth Century Fox and Lucasfilm.

Disney’s studios revenue is relatively volatile based on what movies are released each year but overall, they have seen strong 7-15% yearly growth from these operations. Going forward we are expecting a sharp decline of 17% in 2020 with a gradual recovery in the subsequent years and fully recovering by mid-2023. After the recovery of revenue, we forecast 3% CAGR for the next 3 years and then dropping to 1% growth in the continuing value year in 2029.

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Direct to Consumer: Disney+, HULU, and ESPN+

While this is currently the smallest segment, it is where the most growth will come from that will generate material revenue growth for Disney. We are forecasting 10-20% growth for the next 3 years in this segment and then it declines down to 1% in 2029.

Below are the projected growth rates by segment YOY. Disney’s fiscal year ends September 31st so each of these periods start in October of the previous year. This is why the 2020E decline for Parks & Experiences is less than you would expect. It is because that year includes the quarter from October-December 2019 which was very strong for Disney. The 2020 revenues are estimated because they have not released their Q4 results so 2020E are ¾ actuals and ¼ estimated.

Operating Cost Assumptions

Disney’s key operating assumptions are their cost of product & services and SG&A. We are forecasting increased cost of service and product as Disney will need to make large investments into new content for Disney+ and Hulu. For 2021 we are forecasting a 63% cost of product and sales which then declines to 58.5% by 2029.

Their second largest operating expense is SG&A at 16% of revenue historically. We forecast this to slightly increase to 18% in 2020 due to the fact that they still have a number of expenses they will need to cover even though the parks are not generating revenue so we forecasted it as a higher percentage of revenue to include that expense. After 2021 we forecasted SG&A to remain relatively flat at 16% of revenue.

Debt Maturity

Disney has historically had little debt on its balance sheet but has recently increased its debt by 3x due to the acquisition of 21st Century Fox and raising $18.3 billion in 2020 to make sure they have enough money to get through COVID. In the acquisition of 21 Century Fox they took on $21 billion in debt and then had to make three additional debt offerings in 2020 totaling $18.3 billion to

make sure they could get through COVID. This debt was issued at a blended interest rate of 3.35%. In 2020, Disney has $64 billion dollars in combined short and long-term debt and assets of $194 billion. We are slightly concerned about Disney’s ability to control and pay down their debt. We forecast that Disney will be paying roughly $2.2 billion in interest each year on this $64 billion but forecast them to pay down the principle at 4% a year after 2023. This view may change if COVID is drawn out until past 2022. Then Disney may need to raise additional capital and would be a signal of financial distress.

Luckily for Disney this newly issued debt can take advantage of low rates but without stable cash flow coming in they may need to refinance them in the future.

DCF/EP vs DDM & Relative PE

We put the most emphasis in the DCF/ EP models as it most accurately reflects the true value of Disney. Due to the COVID pandemic Disney decided to completely cut their dividend, but we forecast Disney to reinstate their dividend in 2024 at $1.48 per share which is just 30 cents less than their dividend was previously. With this model we computed a value of $112.26 and put the least amount of weighting into this model.

Our relative PE model computes a value of $138.89 and we put moderate weight into this model as we compared companies that had similar revenue segments to Disney, but no company has all the revenue streams Disney does. While it was once valued very similar to Comcast, Viacom, and Charter Communications, it is starting to move more into the Netflix strategy camp and hopefully get some of the premium associated.

After considering all four valuation models we came to a price target of $150-160, implying a 27% upside.

Our Forecast vs. Consensus

Our forecast is different from other analyst in that we believe Disney will have a slower recovery from COVID then street estimates but better post-COVID revenue and margins.

In 2019, Disney’s revenue was just over $69 billion and in 2020 we are forecasting revenue to decline to $60 billion. This is under the $65 billion analysts are estimating due to our less optimistic Q4 2020 results. We are also forecasting revenue to be $10 billion lower than analysts in 2021 as we

Segments Growth: 2019 2020E 2021E 2022E 2023E 2024E

Media Networks 16.6% -1.9% 3.3% 3.3% 3.3% 3.3%

Parks & Experiences 6.2% -39.0% 2.5% 32.3% 26.2% 5.3%

Studio Entertainment 33.2% -16.9% 4.5% 6.5% 5.5% 5.0%

Direct-to-Consumer 204.0% 49.0% 17.1% 13.3% 10.9% 8.9%

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believe the impacts of COVID will continue to keep people away from traveling to parks and going to movies. Therefore our 2020, 2021 and 2022 EPS is lower than estimates but then that changes in 2023.

After 2023 we believe Disney will have strong growth in Direct to Consumer, Studio Entertainment and Parks. In these segments our long-term forecast outpaces the street and as a result have higher EPS from 2023 onward. Disney is currently covered by 25 analysts with 14 buy ratings, 10 hold rating and 0 sell ratings. All combined with an average price target of $136, moderately below our forecasted range of $150-160.

CATALYSTS FOR GROWTH

We see three key reasons why Disney’s stock is positioned to outperform. Our thesis is driven by the growth in revenue from streaming services, growth in international parks markets and growth in international studio markets.

Disney, ESPN, & Hulu

Disney in in a unique position to create a streaming service that that would have content to appeal to every race and age demographic. We believe that in the future Disney will consolidate Disney+, ESPN+ and Hulu to create one service that has it all. TV Shows, Movies, and sports all in one place for households.

Currently Disney’s direct-to-consumer segment generates $14 billion in revenue and we project that to increase to $25 billion by 2025 and then $28 billion by 2029. This would imply that Disney is able to nearly double its 84 million combined subscribers between Disney+ and Hulu in the next 8 years which we believe is a very conservative growth rate.

International Growth

Over the last five years Disney has had significant expansion in international markets with their network, studio and parks segments. Driven primarily by development in China, Japan and India, consumers in these countries are gaining more access to Disney’s digital content and country development has led to more appetite for theme parks.

We expect this growth to continue as Disney is also creating some content specifically for other populations rather than just taking the English version and translating

it. We believe this targeted content will not only create strong growth in their media and studio platform but then also lead to increased desire for Disney theme parks.

RISKS TO THESIS

Increasing Expenses

One factor that could negatively affect Disney is increased expenses in both their park operations and content production. With the launch of Disney+ and majority stake in Hulu, Disney is going to need to create more content to keep subscribers attached and this will add increased expenses. Including more content to appeals to teenagers and adults that they will either post on Disney+ or Hulu.

New Content Targets

For decades Disney has produced top quality content that has mostly been kids focused. With the acquisition of Hulu, they will now be part in creating content for a new demographic they have not traditionally done. Some of the most successful T.V. shows and series Netflix and HBO have been mature content and Disney does not have extensive experience in this realm. Shows like Game of Thrones, Stanger Things, The Witcher, 13 Reasons Why, Sex Education and more are all top preforming shows that would be consider for mature viewership.

Prolonged COVID-19

As mentioned earlier in the debt section. We are forecasting Disney to have almost no growth in their parks and entertainment division for 2021 but a strong rebound in 2022. This added revenue along with that from studio in 2022 is needed to pay down the interest and principle on Disney’s $64 billion in debt. If these forecasted revenues are not seen, Disney may need to issue more debt that would worry us. It could also potentially drop them out of being an A rated issuer and therefore lead to them paying higher rates on newly issued debt.

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REFERENCES

1. Walt Disney 10k 2. Fortune- World’s Most Admired Companies:

https://fortune.com/worlds-most-admired-companies/

3. Disney 2019 Corporate Social Responsibility Report: https://thewaltdisneycompany.com/esg-reporting/

4. MSCI ESG Rating Report: https://www.msci.com/esg-ratings/issuer/the-walt-disney-company/IID000000002936068

5. FactSet: DIS Earnings Reports 6. DIS 10Q- Q3 2020 7. Disney Purchase of 21st Century Fox:

https://thedisinsider.com/2020/05/13/disneys-purchase-of-21st-century-fox-explained/

8. Fox Movies and TV Shows Disney Now Owns: https://www.polygon.com/2017/12/14/16778224/disney-fox-deal-movies-tv-rights

9. Statista- Streaming Services Statistics: https://www.statista.com/chart/19171/share-of-households-with-access-to-a-subscription-video-on-demand-service/#::text=Chart%3A%2074%25%20Of%20U.S.%20Homes,A%20Video%20Streaming%20Service%20%7C%20Statista&text=Streaming%20in%20the%20U.S.%E2%80%BA

10. Statista: U.S. Subscription Services Data: https://www.statista.com/statistics/778912/video-streaming-service-multiple-subscriptions/

11. Themed Entertainment Association (TEA) annual parks report: https://www.aaaa.org/global-attractions-attendance-report/#::text=Theme%20Index%20and%20Museum%20Index%3A%20Global%20Attractions%20Attendance%20Report,-July%2015%2C%202020&text=The%20Themed%20Entertainment%20Association%20(TEA,global%20and%20regional%20industry%20trends.

12. Streaming Services Price Comparisons: https://www.cnbc.com/2019/02/26/cost-of-popular-streaming-sites-like-netflix-amazon-prime-and-hulu.html

13. Comcast 10k 14. Statista: Netflix Subscribers

https://www.statista.com/statistics/250934/quart

erly-number-of-netflix-streaming-subscribers-worldwide/

15. FRED: Disposable Personal Income: https://fred.stlouisfed.org/series/DSPIC96

16. FRED: Michigan Consumer Sentiment: https://fred.stlouisfed.org/series/UMCSENT

17. WSJ: Disney Laying off 28,000 Employees: https://www.wsj.com/articles/disneylands-reopening-date-remains-unclear-11601413802?cx_testId=3&cx_testVariant=cx_2&cx_artPos=3#cxrecs_s

DISCLAIMER

Henry Fund reports are created by graduate students in the Applied Securities Management program at the University of Iowa’s Tippie College of Business. These reports provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of our students. Henry Fund analysts are not registered investment advisors, brokers or licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold an investment position in the companies mentioned in this report.

Walt Disney CompanyRevenue DecompositionIn MillionsFiscal Years Ending Sept. 28 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029ERevenue Segments:Media Networks 21,299 21,922 24,827 25,416 26,252 27,119 28,001 28,915 29,841 30,778 31,437 32,066 32,387 Domestic 23,623 23,945 24,663 25,403 26,165 26,950 27,759 28,591 29,163 29,746 30,044 International 1,204 1,471 1,589 1,716 1,836 1,965 2,083 2,187 2,274 2,320 2,343 Parks & Experiences 23,024 24,701 26,225 15,939 16,339 21,663 27,374 28,820 30,261 31,472 32,416 33,064 33,395 Domestic 19,631 11,878 12,115 15,750 19,687 20,672 21,705 22,574 23,251 23,716 23,953 International 6,594 4,061 4,224 5,913 7,687 8,148 8,556 8,898 9,165 9,348 9,442 Studio Entertainment 8,352 10,065 11,127 9,442 9,865 10,507 11,088 11,649 12,127 12,499 12,749 13,004 13,134 Domestic 5,269 4,771 4,914 5,160 5,367 5,528 5,638 5,751 5,866 5,983 6,043 International 5,858 4,670 4,951 5,347 5,721 6,121 6,489 6,748 6,883 7,021 7,091 Direct-to-Consumer 3,075 3,414 9,349 14,537 17,020 19,281 21,377 23,274 25,006 26,368 27,277 27,823 28,101 Domestic 3,671 8,474 9,746 10,915 12,007 12,967 13,875 14,568 15,006 15,306 15,459 International 5,678 6,062 7,275 8,366 9,370 10,307 11,132 11,800 12,271 12,517 12,642 Eliminations (613) (668) (1,958) (4,576) (1,215) (1,365) (1,544) (1,726) (1,819) (1,908) (1,984) (2,038) (2,078)

TOTAL: 55,137 59,434 69,570 60,758 68,261 77,205 86,296 90,932 95,417 99,208 101,895 103,919 104,938 Growth rate: -0.89% 7.79% 17.05% -12.67% 12.35% 13.10% 11.77% 5.37% 4.93% 3.97% 2.71% 1.99% 0.98%

Revenue Segments Growth: 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029EMedia Networks -8.45% -7.46% 16.56% 2.37% 3.29% 3.30% 3.25% 3.26% 3.20% 3.14% 2.14% 2.00% 1.00%Parks & Experiences 35.64% 7.28% 6.17% -39.22% 2.51% 32.59% 26.36% 5.28% 5.00% 4.00% 3.00% 2.00% 1.00%Studio Entertainment 13.39% 6.61% 33.23% -15.15% 4.48% 6.51% 5.53% 5.06% 4.10% 3.07% 2.00% 2.00% 1.00%Direct-to-Consumer -45.80% -38.24% 204.03% 55.49% 17.09% 13.28% 10.87% 8.88% 7.44% 5.45% 3.45% 2.00% 1.00%

Not Reported

Not Reported

Not Reported

Not Reported

Walt Disney CompanyIncome StatementIn MillionsFiscal Years Ending Sept. 28 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029ETotal revenues 55,137 59,434 69,570 60,758 68,261 77,205 86,296 90,932 95,417 99,208 101,895 103,919 104,938Media Networks 21,299 21,922 24,827 25,416 26,252 27,119 28,001 28,915 29,841 30,778 31,437 32,066 32,387Parks & Experiences 23,024 24,701 26,225 15,939 16,339 21,663 27,374 28,820 30,261 31,472 32,416 33,064 33,395Studio Entertainment 8,352 10,065 11,127 9,442 9,865 10,507 11,088 11,649 12,127 12,499 12,749 13,004 13,134Direct-to-Consumer 3,075 3,414 9,349 14,537 17,020 19,281 21,377 23,274 25,006 26,368 27,277 27,823 28,101Eliminations (613) (668) (1,958) (4,576) (1,215) (1,365) (1,544) (1,726) (1,819) (1,908) (1,984) (2,038) (2,078)Cost of Products and Services (30,306) (32,726) (42,018) (39,402) (43,005) (46,323) (50,915) (53,650) (55,819) (58,037) (59,609) (60,793) (61,389)Gross Profit 24,831 26,708 27,552 21,356 25,257 30,882 35,381 37,282 39,598 41,171 42,286 43,126 43,549Total Operating Expenses (11,056) (11,904) (16,884) (22,272) (21,436) (21,681) (21,423) (21,549) (22,504) (23,308) (23,870) (24,286) (24,482) Selling, general, administrative and other (8,176) (8,860) (11,541) (12,902) (12,287) (13,125) (13,807) (14,549) (15,267) (15,873) (16,303) (16,627) (16,790) Depreciation (2,586) (2,815) (3,907) (2,354) (3,413) (3,860) (4,315) (4,547) (4,771) (4,960) (5,095) (5,196) (5,247) Amortization of intangiables (196) (196) (253) (1,674) (1,640) (1,607) (1,575) (1,544) (1,513) (1,483) (1,453) (1,424) (1,395) Restructuring and impairment charges (98) (33) (1,183) (5,342) (4,096) (3,088) (1,726) (909) (954) (992) (1,019) (1,039) (1,049)Operating Income 13,775 14,804 10,668 (916) 3,821 9,201 13,958 15,733 17,093 17,863 18,417 18,840 19,068Other income / expense, net 78 601 4,357 508 518 529 539 550 561 572 584 595 607Interest income / expense, net (385) (574) (978) (2,330) (2,330) (2,261) (2,170) (2,083) (2,000) (1,920) (1,843) (1,769) (1,699)Equity in the income of investees 320 (102) (103) 725 732 739 747 754 762 769 777 785 793Income before income taxes 13,788 14,729 13,944 (2,013) 2,741 8,209 13,074 14,954 16,416 17,285 17,934 18,451 18,769Income taxes (4,422) (1,663) (3,031) 437 (595) (1,781) (2,837) (3,245) (3,562) (3,751) (3,892) (4,004) (4,073)Income from continuing operations 9,366 13,066 10,913 (1,577) 2,146 6,428 10,237 11,709 12,854 13,534 14,042 14,447 14,696Net income attributable to noncontrolling interests (386) (468) (530) (411) (415) (419) (423) (428) (432) (436) (441) (445) (449)Net income attributable to The Walt Disney Company (Disney) 8,980 12,598 10,383 (1,988) 1,731 6,008 9,813 11,282 12,422 13,098 13,602 14,002 14,246

Diluted EPS 5.73 8.40 6.27 (1.10) 0.95 3.28 5.33 6.11 6.64 6.93 7.14 7.29 7.37EPS Growth Rate -1% 47% -25% -118% 186% 246% 63% 15% 9% 4% 3% 2% 1%Shares Outstanding 1,568 1,499 1,656 1,807 1,827 1,833 1,840 1,847 1,871 1,889 1,905 1,920 1,934Dividends Paid 1.62 1.72 1.76 0.88 0.00 0.00 0.00 1.46 1.44 1.43 1.42 1.41 1.40

Walt Disney CompanyBalance SheetIn MillionsFiscal Years Ending Sept. 28 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029ETotal assets 95,789 98,598 193,984 208,546 212,671 217,509 225,717 232,532 242,862 251,899 261,518 271,646 282,095 Total current assets 15,889 16,825 28,124 40,405 43,930 48,333 56,154 62,384 71,895 79,818 87,941 96,127 104,103 Cash and cash equivalents 4,017 4,150 5,418 22,190 26,864 29,032 34,580 39,651 48,041 55,016 62,468 70,148 77,868 Receivables 8,633 9,334 15,481 12,622 11,604 13,125 14,670 15,458 16,221 16,865 17,322 17,666 17,839 Inventories 1,373 1,392 1,649 1,559 1,365 1,544 1,726 1,819 1,908 1,984 2,038 2,078 2,099 Television costs and advances 1,278 1,314 4,597 3,135 3,413 3,860 4,315 4,547 4,771 4,960 5,095 5,196 5,247 Other current assets 588 635 979 899 683 772 863 909 954 992 1,019 1,039 1,049 Produced and licensed content costs 7,481 7,888 22,810 25,560 26,327 27,117 27,930 28,768 29,631 30,520 31,436 32,379 33,350 Investments 3,202 2,899 3,224 3,611 3,647 3,684 3,720 3,758 3,795 3,833 3,871 3,910 3,949

Attractions, buildings and equipment, net 25,006 24,474 26,174 26,361 27,227 27,945 28,530 29,225 30,063 31,104 32,432 34,107 36,212 Attractions, buildings and equipment, gross 54,043 55,238 58,589 61,130 65,409 69,988 74,887 80,129 85,738 91,740 98,161 105,033 112,385 Accumulated depreciation (29,037) (30,764) (32,415) (34,769) (38,182) (42,043) (46,357) (50,904) (55,675) (60,635) (65,730) (70,926) (76,173) Projects in progress 2,145 3,942 4,264 4,380 4,579 4,899 5,242 5,609 6,002 6,422 6,871 7,352 7,867 Land 1,255 1,124 1,165 1,020 1,308 1,400 1,498 1,603 1,715 1,835 1,963 2,101 2,248 Intangible assets, net 6,995 6,812 23,215 21,541 19,901 18,294 16,719 15,175 13,662 12,180 10,727 9,303 7,908 Goodwill 31,426 31,269 80,293 77,233 77,233 77,233 77,233 77,233 77,233 77,233 77,233 77,233 77,233 Other assets 2,390 3,365 4,715 8,435 8,519 8,605 8,691 8,777 8,865 8,954 9,043 9,134 9,225

Total liabilities and equity 95,789 98,598 193,984 208,546 212,671 217,509 225,717 232,532 242,862 251,899 261,518 271,646 282,095 Total liabilities 50,785 45,766 100,095 118,168 120,562 119,391 117,786 116,019 116,627 115,266 113,984 112,810 111,712 Total current liabilities 19,595 17,860 31,341 31,899 34,815 35,733 36,636 37,243 40,093 40,851 41,568 42,281 42,963 Accounts payable and other accrued liabilities 8,855 9,479 17,762 16,986 17,665 18,372 19,107 19,871 20,666 21,493 22,352 23,247 24,176 Current portion of borrowings 6,172 3,790 8,857 10,224 10,839 10,514 10,094 9,690 9,302 8,930 8,573 8,230 7,901 Unearned royalties and other advances 4,568 4,591 4,722 3,707 5,461 6,176 6,904 7,275 7,633 7,937 8,152 8,314 8,395 Operating Leases - - - 982 849 670 532 407 2,491 2,491 2,491 2,491 2,491 Borrowings 19,119 17,084 38,129 54,197 54,197 52,571 50,468 48,450 46,512 44,651 42,865 41,150 39,504 Deferred income taxes 4,480 3,109 7,902 7,055 6,491 5,971 5,494 5,054 4,650 4,278 3,936 3,621 3,331 Other long-term liabilities 6,443 6,590 13,760 15,855 16,172 16,496 16,825 17,162 17,505 17,855 18,212 18,577 18,948 Redeemable noncontrolling interest 1,148 1,123 8,963 9,162 8,887 8,621 8,362 8,111 7,868 7,632 7,403 7,181 6,965

Total equity 45,004 52,832 93,889 90,378 92,109 98,118 107,931 116,513 126,235 136,632 147,534 158,836 170,383 Common stock 36,248 36,779 53,907 54,386 54,386 54,386 54,386 54,386 54,386 54,386 54,386 54,386 54,386 Retained earnings 72,606 82,679 42,494 40,506 42,237 48,246 58,059 69,341 81,763 94,860 108,462 122,464 136,711 Accumulated other comprehensive loss / income (3,528) (3,097) (6,617) (6,617) (6,617) (6,617) (6,617) (6,617) (6,617) (6,617) (6,617) (6,617) (6,617) Total Disney shareholders' equity before treasury stock, at cost 105,326 116,361 89,784 88,275 90,006 96,015 105,828 117,110 129,532 142,629 156,231 170,233 184,480 Treasury stock, at cost (64,011) (67,588) (907) (2,494) (2,494) (2,494) (2,494) (5,194) (7,894) (10,594) (13,294) (15,994) (18,694) Total Disney shareholders' equity 41,315 48,773 88,877 85,781 87,512 93,521 103,334 111,916 121,638 132,035 142,937 154,239 165,786 Noncontrolling interests 3,689 4,059 5,012 4,597 4,597 4,597 4,597 4,597 4,597 4,597 4,597 4,597 4,597

Walt Disney CompanyForecasted Cash Flow StatementIn MillionsFiscal Years Ending Sept. 28 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029ECash Flow From Operating Activities:Net Income (1,988) 1,731 6,008 9,813 11,282 12,422 13,098 13,602 14,002 14,246 Depreciation & amortization 4,028 5,053 5,468 5,890 6,090 6,284 6,443 6,548 6,620 6,642 Change in account receivables 2,859 1,018 (1,520) (1,545) (788) (762) (645) (457) (344) (173)Change in inventory 90 194 (179) (182) (93) (90) (76) (54) (40) (20)Change in television costs and advances 1,462 (278) (447) (455) (232) (224) (190) (134) (101) (51)Change in other current assets 80 216 (89) (91) (46) (45) (38) (27) (20) (10)Change in produced and licensed content costs (2,750) (767) (790) (813) (838) (863) (889) (916) (943) (971)Change in accounts payable & other accrued liabilities (776) 679 707 735 764 795 827 860 894 930 Change in current portion of borrowings 1,367 615 (325) (421) (404) (388) (372) (357) (343) (329)Change in unearned royalties and other advances (1,015) 1,754 715 727 371 359 303 215 162 82 Change in deferred income taxes (847) (564) (519) (478) (439) (404) (372) (342) (315) (290) Total Cash Flow from Operating Activities 2,510 9,651 9,028 13,181 15,667 17,083 18,090 18,937 19,571 20,055

Cash Flow from Investing ActivitiesChange in investments (387) (36) (36) (37) (37) (38) (38) (38) (39) (39) Change in investments attractions, buildings and equipment (2,541) (4,279) (4,579) (4,899) (5,242) (5,609) (6,002) (6,422) (6,871) (7,352) Change in projects in progress (116) (199) (321) (343) (367) (393) (420) (450) (481) (515) Change in land 145 (288) (92) (98) (105) (112) (120) (128) (137) (147) Change in intangible assets, netChange in other assets (3,720) (84) (85) (86) (87) (88) (89) (90) (90) (91) Change in Goodwill 3,060 - - - - - - - - - Total Cash Flow from Investing Activities (3,559) (4,886) (5,112) (5,463) (5,838) (6,239) (6,668) (7,128) (7,619) (8,144)

Cash Flow from Financing ActivitiesChange in borrowings 16,068 - (1,626) (2,103) (2,019) (1,938) (1,860) (1,786) (1,715) (1,646) Change in other long term liabilities 2,095 317 323 330 337 343 350 357 364 372 Change in redeemable noncontrolling interest 199 (275) (267) (259) (251) (243) (236) (229) (222) (215) Change in common stock 479 - - - - - - - - - Change in operating leases 982 (133) (179) (138) (125) 2,084 - - - - Long term non controlling interest (415) - - - - - - - - - Dividends paid (1,587) (2,700) (2,700) (2,700) (2,700) (2,700) (2,700) Total Cash Flow from Financing Activities 17,821 (91) (1,748) (2,170) (4,758) (2,454) (4,446) (4,358) (4,272) (4,190)

Net Increase in Cash 16,772 4,674 2,167 5,549 5,071 8,390 6,975 7,452 7,680 7,721 Beginning Cash 5,418 22,190 26,864 29,032 34,580 39,651 48,041 55,016 62,468 70,148 Ending Cash 22,190 26,864 29,032 34,580 39,651 48,041 55,016 62,468 70,148 77,868

Walt Disney CompanyCommon Size Income StatementAs % of RevenueFiscal Years Ending Sept. 28 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029ETotal revenues 55,137 59,434 69,570 60,758 68,261 77,205 86,296 90,932 95,417 99,208 101,895 103,919 104,938 Media Networks 38.63% 36.88% 35.69% 41.83% 38.46% 35.13% 32.45% 31.80% 31.27% 31.02% 30.85% 30.86% 30.86%Parks & Experiences 41.76% 41.56% 37.70% 26.23% 23.94% 28.06% 31.72% 31.69% 31.71% 31.72% 31.81% 31.82% 31.82%Studio Entertainment 15.15% 16.93% 15.99% 15.54% 14.45% 13.61% 12.85% 12.81% 12.71% 12.60% 12.51% 12.51% 12.52%Direct-to-Consumer & International 5.58% 5.74% 13.44% 23.93% 24.93% 24.97% 24.77% 25.60% 26.21% 26.58% 26.77% 26.77% 26.78%Eliminations -1.11% -1.12% -2.81% -7.53% -1.78% -1.77% -1.79% -1.90% -1.91% -1.92% -1.95% -1.96% -1.98%Total Cost of Revenue -54.96% -55.06% -60.40% -64.85% -63.00% -60.00% -59.00% -59.00% -58.50% -58.50% -58.50% -58.50% -58.50%Gross Profit 45.04% 44.94% 39.60% 35.15% 37.00% 40.00% 41.00% 41.00% 41.50% 41.50% 41.50% 41.50% 41.50%Total Operating Expenses -20.05% -20.03% -24.27% -36.66% -31.40% -28.08% -24.83% -23.70% -23.59% -23.49% -23.43% -23.37% -23.33% Selling, general, administrative and other -14.83% -14.91% -16.59% -21.24% -18.00% -17.00% -16.00% -16.00% -16.00% -16.00% -16.00% -16.00% -16.00% Depreciation and amortization -4.69% -4.74% -5.62% -3.87% -5.00% -5.00% -5.00% -5.00% -5.00% -5.00% -5.00% -5.00% -5.00% Amortization of intangiables -0.38% -0.33% -0.28% -2.75% -2.46% -2.17% -1.90% -1.77% -1.65% -1.56% -1.48% -1.43% -1.38% Restructuring and impairment charges -0.18% -0.06% -1.70% -8.79% -6.00% -4.00% -2.00% -1.00% -1.00% -1.00% -1.00% -1.00% -1.00%Operating Income 24.98% 24.91% 15.33% -1.51% 5.60% 11.92% 16.17% 17.30% 17.91% 18.01% 18.07% 18.13% 18.17%Other income / expense, net 0.14% 1.01% 6.26% 0.84% 0.76% 0.68% 0.62% 0.60% 0.59% 0.58% 0.57% 0.57% 0.58%Interest income / expense, net -0.70% -0.97% -1.41% -3.84% -3.41% -2.93% -2.51% -2.29% -2.10% -1.94% -1.81% -1.70% -1.62%Equity in the income of investees 0.58% -0.17% -0.15% 1.19% 1.07% 0.96% 0.87% 0.83% 0.80% 0.78% 0.76% 0.76% 0.76%Income before income taxes 25.01% 24.78% 20.04% -3.31% 4.01% 10.63% 15.15% 16.45% 17.20% 17.42% 17.60% 17.76% 17.89%Income taxes -8.02% -2.80% -4.36% 0.72% -0.87% -2.31% -3.29% -3.57% -3.73% -3.78% -3.82% -3.85% -3.88%Income from continuing operations 16.99% 21.98% 15.69% -2.59% 3.14% 8.33% 11.86% 12.88% 13.47% 13.64% 13.78% 13.90% 14.00%Net income attributable to noncontrolling interests -0.70% -0.79% -0.76% -0.68% -0.61% -0.54% -0.49% -0.47% -0.45% -0.44% -0.43% -0.43% -0.43%Net income attributable to The Walt Disney Company (Disney) 16.29% 21.20% 14.92% -3.27% 2.54% 7.78% 11.37% 12.41% 13.02% 13.20% 13.35% 13.47% 13.58%

Walt Disney CompanyCommon Size Balance SheetAs % of RevenueFiscal Years Ending Sept. 28 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029ERevenue 55,137 59,434 69,570 60,758 68,261 77,205 86,296 90,932 95,417 99,208 101,895 103,919 104,938 Total assets 173.73% 165.89% 278.83% 343.24% 311.55% 281.73% 261.56% 255.72% 254.53% 253.91% 256.65% 261.40% 268.82%Total current assets 28.82% 28.31% 40.43% 66.50% 64.36% 62.60% 65.07% 68.61% 75.35% 80.45% 86.31% 92.50% 99.20% Cash and cash equivalents 7.29% 6.98% 7.79% 36.52% 39.36% 37.60% 40.07% 43.61% 50.35% 55.45% 61.31% 67.50% 74.20% Receivables 15.66% 15.70% 22.25% 20.77% 17.00% 17.00% 17.00% 17.00% 17.00% 17.00% 17.00% 17.00% 17.00% Inventories 2.49% 2.34% 2.37% 2.57% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% Television costs and advances 2.32% 2.21% 6.61% 5.16% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Other current assets 1.07% 1.07% 1.41% 1.48% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%Produced and licensed content costs 13.57% 13.27% 32.79% 42.07% 38.57% 35.12% 32.37% 31.64% 31.05% 30.76% 30.85% 31.16% 31.78%Investments 5.81% 4.88% 4.63% 5.94% 5.34% 4.77% 4.31% 4.13% 3.98% 3.86% 3.80% 3.76% 3.76%

Attractions, buildings and equipment, net 45.35% 41.18% 37.62% 43.39% 39.89% 36.20% 33.06% 32.14% 31.51% 31.35% 31.83% 32.82% 34.51% Attractions, buildings and equipment 98.02% 92.94% 84.22% 100.61% 95.82% 90.65% 86.78% 88.12% 89.86% 92.47% 96.34% 101.07% 107.10% Accumulated depreciation -52.66% -51.76% -46.59% -57.23% -55.94% -54.46% -53.72% -55.98% -58.35% -61.12% -64.51% -68.25% -72.59%Projects in progress 3.89% 6.63% 6.13% 7.21% 6.71% 6.35% 6.07% 6.17% 6.29% 6.47% 6.74% 7.08% 7.50%Land 2.28% 1.89% 1.67% 1.68% 1.92% 1.81% 1.74% 1.76% 1.80% 1.85% 1.93% 2.02% 2.14%Intangible assets, net 12.69% 11.46% 33.37% 35.45% 29.15% 23.70% 19.37% 16.69% 14.32% 12.28% 10.53% 8.95% 7.54%Goodwill 57.00% 52.61% 115.41% 127.12% 113.14% 100.04% 89.50% 84.93% 80.94% 77.85% 75.80% 74.32% 73.60%Other assets 4.33% 5.66% 6.78% 13.88% 12.48% 11.15% 10.07% 9.65% 9.29% 9.03% 8.88% 8.79% 8.79%

Total liabilities and equity 173.73% 165.89% 278.83% 343.24% 311.55% 281.73% 261.56% 255.72% 254.53% 253.91% 256.65% 261.40% 268.82%Total liabilities 92.11% 77.00% 143.88% 194.49% 176.62% 154.64% 136.49% 127.59% 122.23% 116.19% 111.86% 108.56% 106.46%Total current liabilities 35.54% 30.05% 45.05% 52.50% 51.00% 46.28% 42.45% 40.96% 42.02% 41.18% 40.79% 40.69% 40.94% Accounts payable and other accrued liabilities 16.06% 15.95% 25.53% 27.96% 25.88% 23.80% 22.14% 21.85% 21.66% 21.66% 21.94% 22.37% 23.04% Current portion of borrowings 11.19% 6.38% 12.73% 16.83% 15.88% 13.62% 11.70% 10.66% 9.75% 9.00% 8.41% 7.92% 7.53% Unearned royalties and other advances 8.28% 7.72% 6.79% 6.10% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%Borrowings 34.68% 28.74% 54.81% 89.20% 79.40% 68.09% 58.48% 53.28% 48.75% 45.01% 42.07% 39.60% 37.65%Deferred income taxes 8.13% 5.23% 11.36% 11.61% 9.51% 7.73% 6.37% 5.56% 4.87% 4.31% 3.86% 3.48% 3.17%Other long-term liabilities 11.69% 11.09% 19.78% 26.10% 23.69% 21.37% 19.50% 18.87% 18.35% 18.00% 17.87% 17.88% 18.06%Redeemable noncontrolling interest 2.08% 1.89% 12.88% 15.08% 13.02% 11.17% 9.69% 8.92% 8.25% 7.69% 7.27% 6.91% 6.64%

Total equity 81.62% 88.89% 134.96% 148.75% 134.94% 127.09% 125.07% 128.13% 132.30% 137.72% 144.79% 152.85% 162.37%Common stock 65.74% 61.88% 77.49% 89.51% 79.67% 70.44% 63.02% 59.81% 57.00% 54.82% 53.37% 52.34% 51.83%Retained earnings 131.68% 139.11% 61.08% 66.67% 61.88% 62.49% 67.28% 76.26% 85.69% 95.62% 106.45% 117.85% 130.28%Accumulated other comprehensive loss / income -6.40% -5.21% -9.51% -10.89% -9.69% -8.57% -7.67% -7.28% -6.93% -6.67% -6.49% -6.37% -6.31%Total Disney shareholders' equity before treasury stock, at cost 191.03% 195.78% 129.06% 145.29% 131.86% 124.36% 122.63% 128.79% 135.75% 143.77% 153.33% 163.81% 175.80%Treasury stock, at cost -116.09% -113.72% -1.30% -4.10% -3.65% -3.23% -2.89% -5.71% -8.27% -10.68% -13.05% -15.39% -17.81%Total Disney shareholders' equity 74.93% 82.06% 127.75% 141.19% 128.20% 121.13% 119.74% 123.08% 127.48% 133.09% 140.28% 148.42% 157.98%Noncontrolling interests 6.69% 6.83% 7.20% 7.57% 6.73% 5.95% 5.33% 5.06% 4.82% 4.63% 4.51% 4.42% 4.38%

Walt Disney CompanyValue Driver EstimationIn MillionsFiscal Years Ending Sept. 28 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029ENOPLAT:Revenue 55,137 59,434 69,570 50,681 60,758 68,261 77,205 86,296 90,932 95,417 99,208 101,895 103,919 Cost of Revenue (30,306) (32,726) (42,018) (32,867) (39,402) (43,005) (46,323) (50,915) (53,650) (55,819) (58,037) (59,609) (60,793)Selling, general, administrative and other (8,176) (8,860) (11,541) (9,557) (12,902) (12,287) (13,125) (13,807) (14,549) (15,267) (15,873) (16,303) (16,627)Depreciation and amortization (2,586) (2,815) (3,907) (2,328) (2,354) (3,413) (3,860) (4,315) (4,547) (4,771) (4,960) (5,095) (5,196)Restructuring and impairment charges (98) (33) (1,183) (5,342) (5,342) (4,096) (3,088) (1,726) (909) (954) (992) (1,019) (1,039)Other income / expense, net 78 601 4,357 382 508 518 529 539 550 561 572 584 595 Equity in the income of investees 320 (102) (103) 545 725 732 739 747 754 762 769 777 785 Inplied operating lease interest (+) 110 122 127 133 139 145 151 158 165 173 180 188 197

EBITDA: 14,479 15,621 15,302 1,647 2,129 6,856 12,228 16,977 18,746 20,102 20,867 21,418 21,841 Adjusted Taxes:Marginal Tax Rate 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0%Provision for income taxes (+) 4,422 1,663 3,031 650 (437) 595 1,781 2,837 3,245 3,562 3,751 3,892 4,004 Tax on interest income (-) (81) (121) (205) (209) (489) (489) (475) (456) (437) (420) (403) (387) (372) Tax shield on non-operating losses (+) 81 98 111 72 86 87 88 89 90 91 92 93 93 Adjusted Taxes: 4,422 1,641 2,937 513 (840) 192 1,395 2,470 2,897 3,233 3,439 3,597 3,726

Change in Deferred Income Taxes 801 (1,371) 4,793 (847) (564) (519) (478) (439) (404) (372) (342) (315) (290)

NOPLAT 10,858 12,609 17,158 287 2,405 6,144 10,356 14,068 15,445 16,497 17,086 17,506 17,826 NOPLAT Growth Rate 8.88% 16.12% 36.08% -98.33% 737.37% 155.49% 68.54% 35.84% 9.79% 6.81% 3.57% 2.46% 1.82%

Invested Capital (IC):Operating WC:Normal Cash 1,103 1,189 1,391 1,014 1,215 1,365 1,544 1,726 1,819 1,908 1,984 2,038 2,078 Receivables 8,633 9,334 15,481 12,622 11,604 13,125 14,670 15,458 16,221 16,865 17,322 17,666 17,839 Inventories 1,373 1,392 1,649 1,559 1,365 1,544 1,726 1,819 1,908 1,984 2,038 2,078 2,099 Television costs and advances 1,278 1,314 4,597 3,135 3,413 3,860 4,315 4,547 4,771 4,960 5,095 5,196 5,247 Other current assets 588 635 979 899 683 772 863 909 954 992 1,019 1,039 1,049

Operating WC: 12,975 13,864 24,097 19,229 18,281 20,666 23,118 24,459 25,673 26,710 27,458 28,018 28,313

Non-interest CL:Accounts payable and other accrued liabilities 8,855 9,479 17,762 16,986 17,665 18,372 19,107 19,871 20,666 21,493 22,352 23,247 24,176 Unearned royalties and other advances 4,568 4,591 4,722 3,707 5,461 6,176 6,904 7,275 7,633 7,937 8,152 8,314 8,395

Non-interest CL: 13,423 14,070 22,484 20,693 23,126 24,548 26,011 27,146 28,299 29,429 30,504 31,560 32,571

Other LT Operating Assets:Produced and licensed content costs 7,481 7,888 22,810 25,560 26,327 27,117 27,930 28,768 29,631 30,520 31,436 32,379 33,350 Attractions, buildings and equipment, net- PPE 25,006 24,474 26,174 26,361 27,227 27,945 28,530 29,225 30,063 31,104 32,432 34,107 36,212 Projects in progress 2,145 3,942 4,264 4,380 4,579 4,899 5,242 5,609 6,002 6,422 6,871 7,352 7,867 Land 1,255 1,124 1,165 1,020 1,308 1,400 1,498 1,603 1,715 1,835 1,963 2,101 2,248 Intangiable assets, net 6,995 6,812 23,215 21,541 19,901 18,294 16,719 15,175 13,662 12,180 10,727 9,303 7,908 Other assets 2,390 3,365 4,715 8,435 8,519 8,605 8,691 8,777 8,865 8,954 9,043 9,134 9,225 PV of operating leases 2,484 2,739 2,987 4,802 4,960 5,091 5,197 5,324 5,477 5,666 5,908 6,213 6,597

Other LT Operating Assets: 47,756 50,344 85,330 92,099 92,821 93,350 93,806 94,481 95,415 96,681 98,380 100,589 103,407

Other LT operating liabilities:Other long-term liabilities 6,443 6,590 13,760 15,855 16,172 16,496 16,825 17,162 17,505 17,855 18,212 18,577 18,948 Noncontrolling interests 3,689 4,059 5,012 4,597 4,597 4,597 4,597 4,597 4,597 4,597 4,597 4,597 4,597

Other LT operating liabilities: 10,132 10,649 18,772 20,452 20,769 21,093 21,422 21,759 22,102 22,452 22,809 23,174 23,545

Invested Capital (IC) 37,176 39,488 68,171 70,183 67,206 68,375 69,491 70,035 70,686 71,510 72,525 73,873 75,603

Free Cash Flow (FCF):NOPLAT 10,858 12,609 17,158 287 2,405 6,144 10,356 14,068 15,445 16,497 17,086 17,506 17,826 Less change in IC 3,027 2,312 28,683 2,012 (2,977) 1,169 1,116 544 651 824 1,015 1,348 1,730 FCF 7,831 10,297 (11,525) (1,724) 5,382 4,975 9,240 13,523 14,794 15,673 16,071 16,158 16,095

Return on Invested Capital (ROIC):NOPLAT 10,858 12,609 17,158 287 2,405 6,144 10,356 14,068 15,445 16,497 17,086 17,506 17,826 Beg. IC 34,149 37,176 39,488 68,171 70,183 67,206 68,375 69,491 70,035 70,686 71,510 72,525 73,873 ROIC 31.80% 33.92% 43.45% 0.42% 3.43% 9.14% 15.15% 20.24% 22.05% 23.34% 23.89% 24.14% 24.13%

Economic Profit (EP):Beg. IC 34,149 37,176 39,488 68,171 70,183 67,206 68,375 69,491 70,035 70,686 71,510 72,525 73,873 x (ROIC - WACC) 26.35% 28.47% 38.00% -5.03% -2.02% 3.69% 9.70% 14.80% 16.61% 17.89% 18.45% 18.69% 18.68%EP 8,998 10,584 15,007 (3,427) (1,418) 2,483 6,631 10,282 11,629 12,646 13,190 13,556 13,801

Walt Disney CompanyKey Management Ratios

Fiscal Years Ending Sept. 28 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

Liquidity Ratios:Current Ratio (CA/CL) 0.81 0.94 0.90 1.27 1.26 1.35 1.53 1.68 1.79 1.95 2.12 2.27 2.42Cash Ratio (Cash+Marketable Securities)/(CL) 0.21 0.23 0.17 0.70 0.77 0.81 0.94 1.06 1.20 1.35 1.50 1.66 1.81Quick Ratio (Cash+Marketable Securities+ AR)/CL 0.65 0.75 0.67 1.09 1.10 1.18 1.34 1.48 1.60 1.76 1.92 2.08 2.23

Asset-Management Ratios:Account Receivable Turnover (Revenue)/(Avg Accounts Receivable) 6.39 6.37 4.49 4.81 5.88 5.88 5.88 5.88 5.88 5.88 5.88 5.88 5.88Total Assets Turnover (Revenue)/(Avg Total Assets) 0.59 0.61 0.48 0.30 0.32 0.36 0.39 0.40 0.40 0.40 0.40 0.39 0.38Net Working Capital Turnover (Revenue/ NWC) -14.88 -57.42 -21.63 7.14 7.49 6.13 4.42 3.62 3.00 2.55 2.20 1.93 1.72

Financial Leverage Ratios:Debt Ratio (TL/TA) 0.53 0.46 0.52 0.57 0.57 0.55 0.52 0.50 0.48 0.46 0.44 0.42 0.40Equity Ratio (Common Equity/TA) 0.47 0.54 0.48 0.43 0.43 0.45 0.48 0.50 0.52 0.54 0.56 0.58 0.60Debt to Equity (TL/Common Equity) 1.13 0.87 1.07 1.31 1.31 1.22 1.09 1.00 0.92 0.84 0.77 0.71 0.66

Profitability Ratios:Profit Margin (Net Income/ Net Sales) 16.29% 21.20% 14.92% -4.25% -3.27% 2.54% 7.78% 11.37% 12.41% 13.02% 13.20% 13.35% 13.47%Gross Margin (Sales-Cost of Revenue)/ Revenue 154.96% 155.06% 160.40% 164.85% 164.85% 163.00% 160.00% 159.00% 159.00% 158.50% 158.50% 158.50% 158.50%EBITDA Margin (EBITDA/ Net Sales) 26.26% 26.28% 22.00% 3.25% 3.50% 10.04% 15.84% 19.67% 20.62% 21.07% 21.03% 21.02% 21.02%ROE (Net Income/ TA) 9.37% 12.78% 5.35% -1.03% -0.93% 0.80% 2.66% 4.22% 4.65% 4.93% 5.01% 5.01% 4.96%

Payout Policy Ratios:Dividend Payout Ratio (Dividend/EPS) 0.28 0.20 0.28 -0.74 -0.80 0.00 0.00 0.00 0.24 0.22 0.21 0.20 0.19

Walt Disney CompanyWeighted Average Cost of Capital (WACC) Estimation

Cost of Equity: ASSUMPTIONS:Risk-Free Rate 0.78% 10 year treasuryBeta 1.14 5-year monthlyEquity Risk Premium 5.15% Henry Fund EstimateCost of Equity 5.76%

Cost of Debt:Effective Tax rate 21.70%Pre Tax cost of debt 5.68% Blended rate of borrowings interest ratesAfter-Tax Cost of Debt 4.45%

Market Value of Common Equity: MV WeightsTotal Shares Outstanding 1,807Current Stock Price $122.00MV of Equity 220,454 76.10%

Market Value of Debt:Current Portion of LTD 10,224 Long-Term Debt 54,197 PV of Operating Leases 4,802 MV of Total Debt 69,223.15 23.90%

Market Value of the Firm 289,677 100.00%

Estimated WACC 5.45%

In Millions

Walt Disney CompanyDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth of NOPLAT 1.82% CV Year ROIC 24.13% WACC 5.45% Cost of Equity 5.76%

Fiscal Years Ending Sept. 28 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

DCF Model:Free Cash Flow (FCF) 5,382 4,975 9,240 13,523 14,794 15,673 16,071 16,158 16,095 Continuing Value (CV) 454,587 PV of FCF 5,104 4,474 7,881 10,938 11,347 11,401 11,086 10,571 292,007

Value of Operating Assets: 364,809 Non-Operating AdjustmentsNormal Cash 1,215 Less: PV of operating leases (4,960) Less: PV ESOP (1,003) Current portion of LT debt (10,839) Long term debt (54,197) MV of non-controlling int. (4,597) Value of Equity 290,427 Shares Outstanding 1,827 Intrinsic Value of Last FYE 158.99$ Implied Price as of Today 168.31$

EP Model:Economic Profit (EP) (1,418) 2,483 6,631 10,282 11,629 12,646 13,190 13,556 13,801 Continuing Value (CV) 380,715 PV of EP (1,345) 2,233 5,655 8,316 8,920 9,199 9,099 8,868 244,754

Total PV of EP 295,700 Invested Capital (last FYE) 70,183 Value of Operating Assets: 365,883 Non-Operating AdjustmentsNormal Cash 1,215 Less: PV of operating leases (4,960) Less: PV ESOP (1,003) Current portion of LT debt (10,839) Long term debt (54,197) MV of non-controlling int. (4,597) Value of Equity 291,501 Shares Outstanding 1,827 Intrinsic Value of Last FYE 159.58$ Implied Price as of Today 168.31$

Walt Disney CompanyDividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Sept. 28 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E

EPS (1.10)$ 0.95$ 3.28$ 5.33$ 6.11$ 6.64$ 6.93$ 7.14$ 7.29$ 7.37$

Key Assumptions CV growth of EPS 1.00% CV Year ROE 8.59% Cost of Equity 5.76%

Future Cash Flows P/E Multiple (CV Year) 18.56 EPS (CV Year) 7.37$ Future Stock Price 168.31$ Dividends Per Share 0.88$ -$ -$ -$ 1.46$ 1.44$ 1.43$ 1.42$ 1.41$ 1.40$ Discounted Cash Flows 0.83$ -$ -$ -$ 1.10$ 1.03$ 0.97$ 0.91$ 0.85$ 103.05$

Intrinsic Value as of Last FYE 108.74$ Implied Price as of Today 115.11$

Walt Disney CompanyRelative Valuation Models

EPS EPSTicker Company Price 2020E 2021E P/E 20 P/E 21CHTR Charter Communications $609.70 $12.85 $19.74 47.45 30.89 CMCSA Comcast A $45.27 $2.39 $2.94 18.94 15.40 KSE CJ Corporation $69.11 $9.13 $10.84 7.57 6.38 VIAC ViacomCBS $29.73 $4.12 $4.60 7.22 6.46 T AT&T $28.93 $3.17 $3.21 9.10 9.00 NFLX Netflix $476.26 $6.22 $8.81 76.57 54.06

Average 27.81 20.36

DIS Walt Disney Company $122.00 $4.99 $4.32 24.4 28.2

Implied Relative Value: P/E (EPS20) $ 138.89 P/E (EPS21) 87.98$

Walt Disney CompanyPresent Value of Operating Lease ObligationsIn MillionsFiscal Years Ending Sept. 28 2014 2015 2016 2017 2018 2019Year 1 460.0 463.0 477.0 580.0 681.0 982.0Year 2 392.0 389.0 376.0 472.0 571.0 849.0Year 3 327.0 326.0 329.0 401.0 470.0 670.0Year 4 268.0 281.0 278.0 324.0 381.0 532.0Year 5 255.0 239.0 227.0 244.0 261.0 407.0Thereafter 1,715.0 1,626.0 1,419.0 1,327.0 1,220.0 2,491.0 Total Minimum Payments 3,417.0 3,324.0 3,106.0 3,348.0 3,584.0 5,931.0 Less: Cumulative Interest 729.7 701.9 621.8 609.5 597.1 1,128.9 PV of Minimum Payments 2,687.3 2,622.1 2,484.2 2,738.5 2,986.9 4,802.1

Implied Interest in Year 1 Payment 119.5 116.6 110.5 121.8 132.8

Pre-Tax Cost of Debt 4.45% 4.45% 4.45% 4.45% 4.45% 4.45%Years Implied by Year 6 Payment 6.7 6.8 6.3 5.4 4.7 6.1Expected Obligation in Year 6 & Beyond 255 239 227 244 261 407

Walt Disney CompanyEffects of ESOP Exercise and Share Repurchases on Common Stock Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 23Average Time to Maturity (years): 3.43Expected Annual Number of Options Exercised: 7

Current Average Strike Price: 56.07$ Cost of Equity: 5.76%Current Stock Price: $122.00

Fiscal Years Ending Sept. 28 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029EIncrease in Shares Outstanding: 7 7 7 7 7 7 7 7 7 7Average Strike Price: 56.07$ 56.07$ 56.07$ 56.07$ 56.07$ 56.07$ 56.07$ 56.07$ 56.07$ 56.07$ Increase in Common Stock Account: 375 375 375 375 375 375 375 375 375 375

Change in Treasury Stock -1,587 0 0 0 -2,700 -2,700 -2,700 -2,700 -2,700 -2,700Expected Price of Repurchased Shares: 122.00$ 129.03$ 136.46$ 144.33$ 152.64$ 161.44$ 170.74$ 180.58$ 190.98$ 201.99$ Number of Shares Repurchased: (13) - - - (18) (17) (16) (15) (14) (13)

Shares Outstanding (beginning of the year) 1,807 1,827 1,833 1,840 1,847 1,871 1,889 1,905 1,920 1,934Plus: Shares Issued Through ESOP 7 7 7 7 7 1Less: Shares Repurchased in Treasury (13) - - - (18) (17) (16) (15) (14) (13) Shares Outstanding (end of the year) 1,827 1,833 1,840 1,847 1,871 1,889 1,905 1,920 1,934 1,947

Walt Disney CompanySensitivity Tables

168.31$ 0.98 1.03 1.08 1.14 1.20 1.26 1.32 168.31$ 14.50% 15.00% 15.50% 16.00% 16.50% 17.00% 17.50%0.30% 206.04 192.75 180.19 168.31 157.60 147.44 137.78 54.00% 168.31 168.31 168.31 168.31 168.31 168.31 168.310.40% 206.03 192.75 180.19 168.31 157.60 147.43 137.78 55.00% 168.31 168.31 168.31 168.31 168.31 168.31 168.310.50% 206.03 192.75 180.19 168.31 157.60 147.43 137.78 56.00% 168.31 168.31 168.31 168.31 168.31 168.31 168.310.70% 206.03 192.75 180.19 168.31 157.59 147.43 137.77 57.00% 168.31 168.31 168.31 168.31 168.31 168.31 168.310.80% 206.03 192.75 180.19 168.30 157.59 147.43 137.77 58.00% 168.31 168.31 168.31 168.31 168.31 168.31 168.310.80% 206.03 192.75 180.19 168.30 157.59 147.43 137.77 59.00% 168.31 168.31 168.31 168.31 168.31 168.31 168.311.00% 206.02 192.74 180.18 168.30 157.59 147.42 137.77 60.00% 168.31 168.31 168.31 168.31 168.31 168.31 168.31

168.31$ 1.56% 1.64% 1.73% 1.82% 1.91% 2.01% 2.11% 168.31$ 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00%4.42% 199.79 204.09 208.86 214.19 219.85 226.19 233.33 2.00% 165.53 166.01 166.49 166.97 167.45 167.93 168.414.65% 185.32 189.03 193.14 197.70 202.53 207.93 213.97 3.00% 165.97 166.45 166.93 167.41 167.89 168.37 168.854.89% 171.80 175.00 178.53 182.45 186.58 191.16 196.29 4.00% 166.42 166.90 167.38 167.86 168.34 168.82 169.305.15% 159.15 161.91 164.95 168.31 171.83 175.74 180.09 5.00% 166.86 167.34 167.82 168.31 168.79 169.27 169.755.41% 147.86 150.26 152.89 155.79 158.83 162.19 165.90 6.00% 167.31 167.79 168.27 168.75 169.23 169.71 170.195.68% 137.25 139.33 141.61 144.12 146.73 149.61 152.80 7.00% 167.76 168.24 168.72 169.20 169.68 170.16 170.645.96% 127.27 129.07 131.04 133.20 135.46 137.93 140.65 8.00% 168.20 168.68 169.16 169.64 170.12 170.60 171.08

168.31$ 18.61% 19.58% 20.62% 21.70% 22.79% 23.92% 25.12% 168.31$ 20.69% 21.78% 22.92% 24.13% 25.34% 26.60% 27.93%4.94% 172.86 171.01 169.05 166.98 164.88 162.66 160.31 4.67% 226.20 227.26 228.27 229.22 230.09 230.91 231.705.20% 173.30 171.45 169.48 167.40 165.30 163.07 160.72 4.92% 203.91 204.86 205.77 206.63 207.41 208.15 208.865.47% 173.76 171.90 169.93 167.84 165.73 163.50 161.14 5.18% 183.98 184.84 185.66 186.44 187.14 187.81 188.455.76% 174.24 172.38 170.40 168.31 166.19 163.96 161.59 5.45% 166.08 166.86 167.60 168.31 168.94 169.55 170.126.05% 174.72 172.85 170.87 168.77 166.65 164.41 162.04 5.72% 150.70 151.40 152.08 152.71 153.29 153.84 154.376.35% 175.23 173.35 171.37 169.26 167.14 164.89 162.51 6.01% 136.70 137.34 137.96 138.54 139.06 139.56 140.046.67% 175.76 173.88 171.89 169.77 167.64 165.39 163.00 6.31% 123.93 124.52 125.08 125.60 126.08 126.54 126.97

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