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4 Factors Setting the Tone of Disney's (DIS) Q1 Earnings

Of late, media stocks have done considerably well buoyed by video-on-demand programming options, skinny bundles and other revenue generating models. The reflection of the same is quite visible from the overall bullishness seen in the industry.

The Zacks categorized Media Conglomerates industry has advanced 15% in the past three months, comfortably outperforming both the S&P 500 and the Dow Jones Industrial Average that gained 8.7% and 10.8%, respectively. In fact, it also outdid the broader Consumer Discretionary sector that increased 11.4%.

Like other media behemoths, The Walt Disney CompanyDIS has contributed significantly in the bull run of the industry. Shares of this bellwether have surged 19.2% in the above-mentioned time frame, notably outclassing both the industry as well as the sector.

Investors seem to be enthusiastically awaiting Disney's first-quarter fiscal 2017 earnings release, which is slated to be announced on Feb 7, 2017. We observe that the stock has advanced roughly 3.2% in the past five days.

Now it is to be seen whether Disney can live up to the investors' expectation and continue its bull run after it releases first-quarter results. In fourth-quarter fiscal 2016, the company's both top line and bottom line missed the Zacks Consensus Estimate.

Notably, the company earnings have surpassed the Zacks Consensus Estimate in the two out of the four trailing quarters by an average of 1.7%. Let's analyse and find out which factors are setting the path for Disney's first quarter results.

Movie Business: A Driving Factor

This segment continues to impress investors with blockbuster movies. The year 2016 turned out to be yet another golden year for the media behemoth. Stellar box office performance of the company's latest release "Rogue One: A Star Wars Story" has created a new Hollywood record. Disney's Studios touched $7 billion mark at the global box office in 2016 and surpassed its last year's collection of $6.89 billion. Rogue One made at a budget of $200 million has crossed $1 billion at the box office.

We believe that the studio will continue with its success story beyond "Star Wars" and "Zootopia" as it boasts of an impressive lineup of big budget movies up to 2017.

Parks & Resorts Attracting Visitors

Disney's Parks & Resorts division are also doing well. Disney is focused on deploying its capital toward expansion of the Parks and Resorts business, consequently, increasing its market share and creating long-term growth opportunities. Disney's Parks and Resorts segment is once again anticipated to deliver growth in 2017 due in part to the opening of Avatar Land at Walt Disney World as well as a complete year of results from Shanghai Disney Resort, which opened in the mid of 2016. The company is in the process of rolling out more themed attractions in parks and resorts.

Declining Subscriber Count at ESPN a Concern

For some time now, declining subscriber count and higher programming costs have been a cause of concern for investors. Disney's primary cash cow, ESPN, has been under immense pressure as the pay-TV landscape continues to change owing to migration of subscribers to online TV. Falling subscriptions will have a telling effect on the network's ad revenues. In the fourth-quarter fiscal 2016, ESPN's ratings were impacted by change in time of bowl games.

ESPN has been losing subscribers on a regular basis. It lost nearly 3 million subscribers in the past one year as the number of cord cutters continues to increase. At the end of fourth-quarter fiscal 2016, ESPN had a subscriber base of nearly 89 million in comparison to 92 million at the end of the prior-year quarter.

However, the Zacks Rank #3 (Hold) company is striving to bring back ESPN's golden days. In an effort to attract online viewers, the company has inked a deal with video streaming, data analytics as well as commerce management company, BAMTech. Further, the company has the option to acquire majority of the stake in BAMTech, in future. It said that it will use BAMTech to create an ESPN-branded, over-the-top video streaming service that will cover a variety of sports.

Further, Disney is putting a lot of effort to make its content accessible to more customers. Earlier, the company stated that AT&T's DirecTV will feature channels like ESPN, ESPN2, ABC, Freeform, Disney Channel, Disney XD as well as Disney Junior in their subscription packages in the upcoming DirecTV Now OTT service. Now only time will tell whether the efforts made by Disney to save ESPN will yield a fruitful result or not.

Which Way Are Estimates Treading?

Let's look at Disney's earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company. The company's first-quarter fiscal 2017 Zacks Consensus Estimate has witnessed a downward revision in the past 7 days and is currently pegged at $1.47, which is 9.8% below the prior-year reported figure of $1.63 per share. Analysts polled by Zacks expect revenues of $15.26 billion, almost flat from the year-ago quarter.

Walt Disney Company (The) Price, Consensus and EPS Surprise

Walt Disney Company (The) Price, Consensus and EPS Surprise | Walt Disney Company (The) Quote

Bottom Line

We believe Disney's sturdy movie business and solid performance of the Parks & Resorts division continue to act as catalysts. However, waning subscriber count at ESPN poses a concern. Moreover, recent downtrend seen in the Zacks Consensus Estimate indicates that analysts are less constructive about the stock's upbeat performance.

Other Stocks to Watch for Earnings

Investors following the Media stocks may watch out for earnings of Time Warner Inc. TWX , Viacom, Inc. VIAB and Twenty-First Century Fox, Inc. FOXA , which are anticipated to report quarterly results on Feb 8, 9 and 6, respectively. You can also uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Among the aforementioned stocks Twenty-First Century Fox has a Zacks Rank #2 (Buy), whereas Time Warner and Viacom hold a Zacks rank #3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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