cif sector recommendation report (fall 2012) · 1 date4/2/2013 analyst:kristen hecht cif sector...
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Date4/2/2013
Analyst:KristenHecht
CIFSectorRecommendationReport(Fall2012)
SectorCND ReviewPeriod3/19/2013–4/2/2013
Section(A) SectorPerformanceReview
Copy/paste“SectorReviewSpreadsheet”(theentirespreadsheet)hereCND
Ticker Current Beg. Stop-loss Target
% Cap
# Shares Current
vs. Sector
vs. S&P 500
Price Price Price Price Gain Value S&P 500 $INX 1570.12 1552.10 1.16% Sector ETF XLY $53.06 $52.19 1.67% 3030 $160,771.80 0.51%
Current Holdings
DIS $57.46 $56.83 1.11% 700 $40,222.00 -0.56% -0.05%
Reviewsectorperformancerelativetothebroadmarket(SP500)andexplainwhy;Includeatwo‐week(forthetwo‐weekwindowreviewed)pricechartoftheSPDRsectorETFandSP500(onthesamechart)
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ThesectorhasoutperformedtheS&Pinthelasttwoweeksby.51%.Thisismostlikelyduetothefactthatconsumerdiscretionaryisacyclicalsectorandtendstodoverywellwhenthemarketisdoingwell,andduringmytimeperiodtheS&P500reachedanalltimehigh,soitmakessensethattheconsumerdiscretionarywouldbeoutperformingthemarket.
Highlightnoteworthyheadlinenewsfromthesector(company‐,industry‐,orsector‐levelnews)
ConsumerDiscretionaryasawholehasdoneextremelywellrecently.Theyhaveposted14straightquartersofearningsgrowth,andhaverisen40.4%sincethepreviousclosinghighinOctoberof2007.EightofthetwentybestperformingstockssinceOctoberof2007areintheconsumerdiscretionarysector,includingAmazon.comandNetflix.com(CNBC.com).RetailratesroseattheirfastestrateinfivemonthsinFebruary(CNBC.com).Overallthesectorhasdoneincrediblywellinthelastfewyears,andalsoveryrecently.
However,thelatesnow‐stormsintheMidwestmayhavecontributedtoalowerconsumerconfidenceindexof59.7inMarch,downfrom68inFebruary,whichisnotagoodsignfortheretailindustry(Foxbusiness.com).Thismayhaveespeciallyaffectedclothingretailerswhoarestuckwithspringinventorythatjustisn’tsellingduetocolderthanaveragetemperatures.Howeverifthenationstartstoexperiencewarmweathersoon,thistrendcouldbequicklyturnedaround.
TheRPI(RestaurantPerformanceIndex)droppedtobelow100inFebruarycitingaslowdowninsame‐storesalesandlesstraffic(NationalRestaurantAssociation.com).“Despitethesalesand
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trafficdeclineinFebruary,restaurantoperatorsremaingenerallyoptimisticaboutthebusinessconditionsinthemonthsahead(NRN.com).
Toys‘R’UsjustrecentlydecidednottogothroughwiththeirIPOciting“unfavorablemarketconditionsandchangesinexecutiveleadership”(CNBC.com).Howevertheyhadplummetingnetincomethisquarterandadecreaseinsamestoresales.Thiscouldbeawarningsignforthesectorasawholethatbrick‐and‐mortarstoreswillexperiencecontinuedhardshipsinthefuturetocompetewithtechnologyoptionsandonlineresources(CNBC.com).
Highlightthebiggest(+)andthebiggest(‐)moversfromthesectorholdingsduringthereviewperiod.Aretherenotablereasonswhythestockshadbigmoves(e.g.,earningssurprises,etc)?
Gamestopwasthebiggestwinnerduringthereviewperiodwithgainsof15.71%.Thisisduetoit’sshocktothemarketwithstrongfourthquarterresults.Theirnetprofitsgrew49%onayear‐to‐yearbasisandseveralanalystsrespondedtothisbygivingupgradestoGamestop(SchaeffersResearch.com).
Nikealsohadgrowthof7.57%duringthereviewperiodandcameinasthesecondlargestgainerduringtheperiod.GoldmanSachsresumedcoverageofNikeandassignedthema‘buy’ratingandsaidtheyexpecttoseethestockpriceincreasebyabout20%to$70.00,andupto20%EPSgrowthin2014(Dividend.com).ThestockpriceincreasealsocomesontheheelsoftheirstrongquarterperformanceannouncedinMarch.
JCPennywasdown9.09%.OverthereviewperiodBMOCapitaldowngradedthestocktounder‐performandslasheditspricefrom$18to$12(Fool.com).Thisisamidstextremelyhardtimesfortheretailer,whocan’tseemtocompetewithhigherqualitybrandlikeNordstromorSaks,norcantheycompetewithWalMartandTargetwhoalsoselldiscountedclothingandaccesories.JCPtraditionallyhadtodiscountmerchandisetomoveitoutthedoor,butinthepastyearhasadoptedano‐discountmodel.HowevertheCEORonJohnsonwhowashiredfromAppleinordertoturnthebusinessaroundreceivednobonusesorstockoptionsthisyearduetothepoorperformanceofthecompany(Rueters.com).
PVHwasdown7.05%.PVHCorpownsavarietyofapparelandaccessoriesbrandssuchasCalvinKlein,TommyHilfiger,KennethCole,SeanJohn,andMichaelKors.TheyannouncedonThursdayMarch28ththatanacquisitionwillrequiremoreinvestmentthanoriginallythought,andwillhurtearningsfor2013(AssociatedPress.com).TheacquisitionwasforWarnacoGroupfor$2.9billion,howevertheyannouncedtheywillneedtomoremoneyintotheinvestmenttosolidifytheCalvinKleinDenimandUnderwearbusinesses.Althoughtheirfourthquartermorethandoubledtheirnetincomeandtheybeatestimates,theannouncementthattheearningsfor2013coulddecreasebyasmuchas$0.25drovethestockpricedown.
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Highlightthelargesttwoholdingsfromthesectorandnoteanyheadlinenewsonthecompanies
Comcast,whichconsistsof6.83%ofthesector,hadasuccessfulweekendattheboxoffice.G.IJoe:Retaliationopenedatnumber1attheboxofficeovertheweekend,bringingin40.5milliondollarsinticketsales.Howevertheystillfell1%onMonday,whenthemarketseemedtorespondabittotherecordhighonThursdayatclosing(Yahoo.finance.com).ThisdropismostlikelyduetoanappealscourtrulinginfavorofAereo,astart‐upthattakesbroadcastT.Vinstantlytointernetdevices.TheU.SAppealscourtruledthatthecompanycouldcontinuesellingit’sservicesuntillitigationbetweenthestart‐upandlargemedianetworkswasresolved(Investors.com).
HomeDepotmakesup6.42%offthesector.Theyjustrecentlysettledan$8millionlawsuitwithCalifornia’sSouthCoastAirQualityManagementDistrict,inwhichtheyadmittedtheysoldcoatingstheyknewcontainedexcessivelevelsofsmogcreatingchemicals(Fools.com).HomeDepothita13‐yearhighearlyinMarchof$71.45.Theyhavegained39%growthinthelast12months,dueinparttoresponsefromHurricaneSandyaswellastheboominthehousingmarket.InFebruarytheyalsoapprovedanew$17billionstockrepurchaseprogramthatwillbeineffectthroughtheendoffiscalyear2015(SeekingAlpha.com).
AlthoughduringmyreviewperiodHomeDepotwasthesecondlargestholderinthesector,on4/5/2013ForbesannouncedthatWaltDisneywasnowthe28thlargestcompanybasedonmarketcapitalization,surpassingHomeDepot.Thatwouldmakethemforthenextsectorreport,thesecondlargestholdingintheXLYbasedonmarketcap.
Commentonshort‐termoutlookofthesector(includingnoteworthyupcomingevents)Theshort–termoutlookforthesectorwillbelargelydependantonearnings,asthefirstquarterof2013endedonMarch31stformostcompanies.TheconsumerconfidenceindexwasdowninMarch,andsomereportsindicatethatrestaurantsandretailerslackedtrafficandmayhavelostsalesthislastquarter.ThesectorasawholehasoutperformedtheS&P500thisyearsofar,andthatisanaccomplishmentwiththerecentupswinginthemarket,andrecord‐breakinghighs.Whatisworrisomeiswhetherthemarket,andthemorecyclicalsectorssuchasdiscretionarywillbeabletomaintainsuchgrowth.Morningstarsaystheoutlookforconsumerdiscretionaryis“cautiouslyoptimistic”(MorningStar.com).Intheshort‐runtheincreasedpayrolltaxesandausteritymeasurescoulddamperconsumerspending.ConcernsoverEuropecouldaddtoslowinggrowthforequity.Howevermostmanagementteamsintheconsumerdiscretionarysectorstillexpectgrowthfor2013.Ibelievethequarterlyearningsreportswillbegoodbutnotgreatforthesector,andtheywillexperiencegrowth,butnotatsuchafastpacedastheyhaveseensofarin2013.
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Section(B) SectorHoldingUpdates
Company#1:WaltDisneyCorporation(DIS)
DateRecommended:03/08/2013
DateRe‐evaluated:04/08/2013
CompanyUpdate
Brieflyupdatewhathappenedtothecompanythelasttwoweeks(upthroughyourre‐evaluationdate).Thisshouldincludenoteworthyheadlinenewsonthestock(e.g.,earningsannouncement,management’scommentsoncompanyoutlookand/orstrategicchanges,changesinanalystrecommendationsorestimaterevisions,newproductlaunch,managementturnover,legalorregulatoryissues,merger/acquisitionannouncement,restructureannouncement,newsfrommajorcompetitors,etc.)LikeComcast,DisneytookasmallblowintherulingthatAereocouldcontinuetosellit’sservicesintheUnitedStatesuntilfurtherlitigationhappens.Disney,likeNewscorpandComcast,arguesthatAereoisunlawfully“capturingandredistributingtheirsignalsandcopyrightsmaterials”(Investors.com).ThisrulingisaminorsetbackforDisney,butcouldhavelargerimplicationsdowntheroad.IftheongoinglitigationrulesinfavorofAereo,itcouldthreatentheirabilitytocontrolsubscriptionfeesandadvertisingrevenue,whichisamajorsourceofrevenueforDisney.DisneyannouncedonTuesdaytheywillbereleasing“FindingDory”inNovember2015,asasequeltotheOscarwinningandcommercialsuccessofFindingNemoin2003.ThesequelwillstarEllenDeGeneres,whowillbereprisingherroleastheforgetfulfish,Dory.TheoriginalFindingNemobroughtin$922millioninticketsalesworldwide(Reuters.com).DisneyalsoannouncedonThursday4/04/2013thattheywillbeginlayoffsinthemarketingandhomeentertainmentdivisionsaspartofcorporaterestructuring.Thereisnoindicationofhowmanylayoffsitwillbe,Disneyrespondedtothisnewswitha.2%gaininthemarketon4/05/2013(LATimes.com).However,onearticleclaimsthattheselayoffsarenotsignsofweaknessesinthecompany,ratherthatwithsomanyacquisitionstherearenumerouspositionsthatareredundant,andthatthisismoreofaprofitmarginsfocusedlayoffthanDisneyneedingtocutexpenses,withsomanyjobsbecomingunnecessarywiththeimprovementoftechnology(WallStreetCheatStreet).
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RelativePerformance
Reviewrelativeperformanceofeachsectorholding,overthetwo‐weekreviewperiod,bothrelativetotheSP500andtotherespectiveSPDRsectorETF.Relateyourcommentsonrelativeperformancetotheupdatesdiscussedabove
OverthetwoweekperiodDisneyhasunderperformedthesectorandtheS&P500.Ithinkthiscanbemainlycontributedtoithavingrecentlyachieveda52‐weekhighalittleearlierthanthemarketreallypickedupspeedandtheS&Pachievedandbroketherecordfortheit’salltimehighonThursdayMarch28th.Disneydidunderperformthesectorandthemarket,andthatisnotaverygoodsign,howeveritdidachieveapositivereturnduringthereviewperiodandwasoutperformedbythesecotrbylessthan1%.
PriceCharts
Insertapricechartofthestockforthemostrecentthreemonths.Youshouldincludeonthesamechart(1)theSPDRsectorETF,(2)andtheSP500pricesforthesameperiod
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Insertapricechartofthestockforthemostrecentoneyear.Youshouldincludeonthesamechart(1)theSPDRsectorETF,(2)andtheSP500pricesforthesameperiod
BothstockchartsshowDisneyoutperformingthesectorandthemarket.HoweverthisisdifferentfromthetwoweekstockchartwhereDisneyisoutperformedbyboththesectorandthemarket.
ValuationsAnalysis
OriginalAnalysis
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Copy/pasteP/E(TTM),P/S(TTM),P/B(MRQ),P/CF(TTM)ofthestock,theindustry,andthesectorfrom“ratioanalysis”sectionoftheoriginalstockrecommendationreport(fromCIFwebsite,“reports”tab)
RatioAnalysisCompanyIndustrySector P/E(TTM) 17.6220.61 14.25 P/S(TTM)2.38.131.34 P/B(MRQ)2.391.051.44 P/CF(TTM)12.1315.328.38
Re‐evaluationAnalysis
Copy/pastetherequestedvaluationmultiplesfromhttp://www.reuters.com/,“Financials”tab
Company Industry Sector
P/ERatio(TTM) 18.34 21.47 22.27
PricetoSales(TTM) 2.39 8.41 1.28
PricetoBook(MRQ) 2.49 1.20 1.46
PricetoCashFlow(TTM) 12.63 14.80 8.26
BrieflydiscussthechangesAllfourofDisney’sratioshaveactuallyincreasedslightlysincetheoriginalvaluation.IbelievethisisbecauseDisney’sstockpriceshaveincreasedsincethevaluationdate,thusdrivingtheratiosup.HoweverinallbutP/BDisneystilldoesappeartobecheapwhencomparedottheindustryandsectorasawhole.HistoricalSurprises
OriginalAnalysis
Copy/paste“HistoricalSurprises”Tablefromtheoriginalstockrecommendationreport(fromCIFwebsite,“reports”tab)
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EstimatesvsActualEstimateActualDifferenceSurprise% SALES(inmillions)
Re‐evaluationAnalysis
Copy/Pastethe“HistoricalSurprises”Tablefromhttp://www.reuters.com/,“Analysts”tab(includebothrevenueandearnings;makenotethatrevenuesmightbein“millions”)HistoricalSurprisesSalesandProfitFiguresinUSDollar(USD)EarningsandDividendFiguresinUSDollar(USD)
EstimatesvsActual Estimate Actual Difference Surprise%
SALES(inmillions)
QuarterEndingDec‐12 11,210.10 11,341.00 130.91 1.17
QuarterEndingSep‐12 10,921.50 10,782.00 139.52 1.28
QuarterEndingJun‐12 11,298.20 11,088.00 210.18 1.86
QuarterEndingMar‐12 9,563.77 9,629.00 65.23 0.68
QuarterEndingDec‐11 11,181.20 10,779.00 402.20 3.60
Earnings(pershare)
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QuarterEndingDec‐12 0.76 0.79 0.03 3.82
QuarterEndingSep‐12 0.68 0.68 0.00 0.09
QuarterEndingJun‐12 0.92 1.01 0.09 9.34
QuarterEndingMar‐12 0.55 0.58 0.03 4.96
QuarterEndingDec‐11 0.71 0.80 0.09 11.95
BrieflydiscussthechangesTherewerenochangesbetweentheoriginalvaluationdateandthecurrentstatus.ConsensusEstimates
OriginalAnalysis
Copy/paste“ConsensusEstimatesAnalysis”Tablefromtheoriginalstockrecommendationreport(fromCIFwebsite,“reports”tab)
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Re‐EvaluationAnalysis
Copy/pastethe“ConsensusEstimatesAnalysis”Tablefromhttp://www.reuters.com/,“Analysts”tab(includebothrevenueandearnings)ConsensusEstimatesAnalysisSalesandProfitFiguresinUSDollar(USD)EarningsandDividendFiguresinUSDollar(USD)
#ofEstimates Mean High Low1YearAgo
SALES(inmillions)
QuarterEndingJun‐13 26 11,769.10 12,416.20 11,399.00 11,596.90
QuarterEndingSep‐13 26 11,653.60 12,143.30 11,373.00 11,586.40
YearEndingSep‐13 29 45,183.40 46,520.10 44,003.00 44,844.90
YearEndingSep‐14 29 47,966.80 49,689.00 46,825.00 47,347.20
Earnings(pershare)
QuarterEndingJun‐13 28 1.07 1.14 1.00 1.04
QuarterEndingSep‐13 28 0.83 0.94 0.75 0.80
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YearEndingSep‐13 30 3.45 3.66 3.37 3.40
YearEndingSep‐14 31 3.88 4.12 3.70 3.79
LTGrowthRate(%) 7 12.44 16.10 10.00 13.20
BrieflydiscussthechangesTherewasonemoreanalystwhoestimatedthesales,andthisincreasedthemeanestimatesforThequarterendingJun‐13,QuarterEndingSep‐13andtheyearendingSeptember‐14,butitdecreasedthemeanslightlyfortheyearendingSep13.Thisisamostlybullishindicatorthattheestimateshavemostlyincreased,especiallyfortheupcomingquarter.Theestimatesforearningsbarelychanged,buttheLTGrowthRatemeandidincrease.EstimateRevisionAnalysis
OriginalAnalysis(MM/DD/YYYY)
Copy/paste“EstimatesRevisionSummary”Tablefromtheoriginalstockrecommendationreport(fromCIFwebsite,“reports”tab)
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Re‐EvaluationAnalysis
Copy/pastethe“EstimatesRevisionsSummary”Tablefromhttp://www.reuters.com/,“Analysts”tab(includebothrevenueandearnings)EstimatesRevisionsSummary
LastWeek Last4Weeks
NumberOfRevisions: Up Down Up Down
Revenue
QuarterEndingJun‐13 0 1 1 2
QuarterEndingSep‐13 0 1 1 2
YearEndingSep‐13 0 0 2 0
YearEndingSep‐14 0 0 2 0
Earnings
QuarterEndingJun‐13 0 0 2 0
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QuarterEndingSep‐13 0 0 1 1
YearEndingSep‐13 0 0 2 0
YearEndingSep‐14 0 0 1 0
Brieflydiscussthechanges
Originallythereweremuchmorerevisionsingeneralinthelastmonth,Iwouldcontributesomeofthistobeingclosertotheearningsdate,solessrevisionsarebeinginmade.Howeverthethemethatthereweremoreuprevisionsthandownrevisionsstayedconstantbetweentheoriginalvaluationdateandthecurrentnumbers.,andalsothattherewerenorevisionsduringthelastweek.Analysts’Recommendations
OriginalAnalysis
Copy/paste“AnalystRecommendationsandRevisions”Tablefromtheoriginalstockrecommendationreport(fromCIFwebsite,“reports”tab)
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Re‐EvaluationAnalysis
Copy/pastethe“AnalystRecommendationsandRevisions”Tablefromhttp://www.reuters.com/,“Analysts”tab(includebothrevenueandearnings)AnalystRecommendationsandRevisions
1‐5LinearScale Current1MonthAgo
2MonthAgo
3MonthAgo
(1)BUY 8 8 8 8
(2)OUTPERFORM 10 10 10 10
(3)HOLD 11 11 11 11
(4)UNDERPERFORM 0 0 0 1
(5)SELL 0 0 0 0
NoOpinion 0 0 0 0
MeanRating 2.10 2.10 2.10 2.17
BrieflydiscussthechangesTherearenochangesinthecurrentanalystrecommendations,thereisstillameanratingof2.1,whichindicatesanoutperformrating.
Section(C) SectorRecommendations
YouwillmakerecommendationsonwhetherCIFshouldcontinuetoownitssectorholdings
Provideyourviewsonthesector.Areyoubullish,bearishorneutralonthesector,andwhy?
DiscusswhetheryourecommendCIFto(1)stayputwithitscurrentsectorholdings,or(2)selloutofthesector,andwhy?
IbelievethatweshouldcontinuetowonthesectorholdingsfortheXLY.NotonlybecauseweneedtodosoinordertostayconstantwiththeS&P,whichisourbenchmarkforthisclass,butalsobecausethesectorhasbeendoingwellandoutperformingthemarketsincethestartof
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2013,andIbelievewithearningsjustaroundthecorner,wewillseegoodsalesandearningsfromtheconsumerdiscretionarysectorcompaniesandtheywillcontinueto
Section(D) SectorHoldingRecommendations
Basedonyouranalysis,aretherestocksCIFcurrentlyownsfromyoursectoryouwouldrecommendto:
1. Sellandwhy?2. Adjust“targetprice”andwhy?Ifyourecommendanadjustment,youmustsuggestanew
“targetprice”3. Adjust“stop‐lossprice”andwhy?Ifyourecommendanadjustment,youmustsuggesta
new“stop‐lossprice”
Provideyourrecommendationsinthefollowingtable
Recommendation(ExplainWhy)
CompanyName
TickerSymbol
Date
Recommended
DateRe‐evaluated
Sell
Adjust“TargetPrice”
Adjust“Stop‐lossPrice”
WaltDisneyCorporation
DIS 3/08/2013 4/08/2013 No No No
IrecommendthatwedonotsellDisney,anddonotchangethetargetpriceorthestop‐lossprice.Althoughitunderperformedthesectorandthemarketduringthetwo‐weekreviewperioditclosedonFridayApril5thupto$57.70,whichishigherthanthe$57.37wepaidforI,tdespitethemarketbeingdown.43%.IthinkwiththeopeningofIronMan3onMay3rdandtheirfirstquarterearningsbeingreleasedonMay6ththatweshouldcontinuetoholdthisstockandthereisnopressingneedtochangethetargetpriceorthestop‐lossprice.Disney’sOz:TheGreatandPowerfulhasalreadypulledin$417millioninticketprices,andsomeanalystspredictthatIronMan3,hotoffthesuccessofTonyStark’scharacterin“TheAvengers”,couldtop$1billioninsales.
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WorksCited
http://www.reuters.com/article/2013/04/02/entertainment‐us‐findingdory‐idUSBRE9310SS20130402http://www.cnbc.com/id/100607287http://finance.yahoo.com/news/final‐glance‐media‐companies‐220442669.htmlhttp://news.investors.com/technology/040113‐649914‐aereo‐broadcaster‐spat‐may‐reach‐supreme‐court.htm?ven=yahoocp,yahoohttp://www.fool.com/investing/general/2013/04/01/home‐depot‐dreams‐california‐lawsuits‐go‐away.aspxhttp://seekingalpha.com/article/1312851‐is‐the‐housing‐market‐recovery‐still‐a‐boon‐for‐these‐5‐dividend‐stocks?source=yahoohttp://www.fool.com/investing/general/2013/03/25/is‐j‐c‐penney‐a‐lost‐cause.aspxhttp://finance.yahoo.com/news/penney‐ceo‐gets‐no‐bonus‐223121175.htmlhttp://www.dividend.com/news/2013/goldman‐sachs‐resumes‐coverage‐of‐nike‐at‐buy‐nke/http://www.schaeffersresearch.com/marketcenters/optionscenter/content/gamestop+corp+gme+swarmed+by+option+traders+post‐earnings/default.aspx?ID=115427http://www.forbes.com/sites/dividendchannel/2013/04/05/walt‐disney‐now‐28‐largest‐company‐surpassing‐home‐depot/http://www.latimes.com/entertainment/envelope/cotown/la‐et‐ct‐walt‐disney‐co‐layoffs‐expected‐20130405,0,5498621.storyhttp://wallstcheatsheet.com/stocks/are‐cuts‐by‐disney‐a‐positive‐development.html/?ref=YF
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