Critical Comparison: The Walt Disney Company (DIS) vs. Viacom, Inc. (VIAB)

The Walt Disney Company (NYSE:DIS) shares are up more than 2.88% this year and recently decreased -1.13% or -$1.22 to settle at $106.00. Viacom, Inc. (NASDAQ:VIAB), on the other hand, is down -17.55% year to date as of 12/05/2017. It currently trades at $28.89 and has returned 7.07% during the past week.

The Walt Disney Company (NYSE:DIS) and Viacom, Inc. (NASDAQ:VIAB) are the two most active stocks in the Entertainment – Diversified industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.


The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect DIS to grow earnings at a 6.66% annual rate over the next 5 years. Comparatively, VIAB is expected to grow at a 5.76% annual rate. All else equal, DIS’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. The Walt Disney Company (DIS) has an EBITDA margin of 29.35%. This suggests that DIS underlying business is more profitable DIS’s ROI is 14.20% while VIAB has a ROI of 14.50%. The interpretation is that VIAB’s business generates a higher return on investment than DIS’s.

Cash Flow 

Earnings don’t always accurately reflect the amount of cash that a company brings in. DIS’s free cash flow (“FCF”) per share for the trailing twelve months was +0.91. Comparatively, VIAB’s free cash flow per share was +2.19. On a percent-of-sales basis, DIS’s free cash flow was 2.49% while VIAB converted 6.64% of its revenues into cash flow. This means that, for a given level of sales, VIAB is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. DIS has a current ratio of 0.80 compared to 1.50 for VIAB. This means that VIAB can more easily cover its most immediate liabilities over the next twelve months. DIS’s debt-to-equity ratio is 0.61 versus a D/E of 1.84 for VIAB. VIAB is therefore the more solvent of the two companies, and has lower financial risk.


DIS trades at a forward P/E of 16.37, a P/B of 3.99, and a P/S of 2.95, compared to a forward P/E of 7.51, a P/B of 1.93, and a P/S of 0.90 for VIAB. DIS is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. DIS is currently priced at a -3.12% to its one-year price target of 109.41. Comparatively, VIAB is -6.75% relative to its price target of 30.98. This suggests that VIAB is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for DIS and 2.80 for VIAB, which implies that analysts are more bullish on the outlook for VIAB.

Risk and Volatility

To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. DIS has a beta of 1.38 and VIAB’s beta is 1.60. DIS’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. DIS has a short ratio of 2.73 compared to a short interest of 4.65 for VIAB. This implies that the market is currently less bearish on the outlook for DIS.


Viacom, Inc. (NASDAQ:VIAB) beats The Walt Disney Company (NYSE:DIS) on a total of 8 of the 14 factors compared between the two stocks. VIAB is growing fastly, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. In terms of valuation, VIAB is the cheaper of the two stocks on an earnings, book value and sales basis, VIAB is more undervalued relative to its price target. Finally, TWX has better sentiment signals based on short interest.

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