Buy Disney (DIS) Stock Ahead of Earnings on Avengers Strength, Streaming Future?
Shares of Disney DIS have surged roughly 18% since the company’s April 11 investor day. The entertainment powerhouse detailed some of its plans for its new Disney+ streaming service that hopes to compete against Netflix NFLX and Amazon Prime AMZN.
Despite the recent streaming-focused climb, Wall Street will still be interested in Disney’s Q2 fiscal 2019 financial results, which are due out after the closing bell on Wednesday, May 8.
Disney officially completed in March its $71.3 billion purchase of key 21st Century Fox FOXA assets, including its film and TV studios. The move is part of the company’s larger push to dominate the box office, expand its theme parks, and offer a more complete and compelling streaming platform. It is unclear exactly what Disney+ will feature when it is launched on November 12 at $6.99 per month—Netflix currently charges $15.99 for its premium plan, while a Prime membership costs $119 a year.
What we do know is that users will have access to an array of content from some of the biggest brands in entrainment: Disney, Pixar, Star Wars, Marvel, and National Geographic. This will include new shows and movies along with already released content. On top of that, Disney rolled out its ESPN+ streaming platform in April 2018 for $4.99 a month. Disney has poured money into the platform’s functionality along with offerings, which includes soccer, a massive UFC package, and more. The company and Wall Street have seemed pleased with ESPN+’s progress after it hit two million paid subscriptions before the end of last year. More encouraging still: ESPN+ is hardly a replacement for ESPN.
As we mentioned at the top, DIS has seen its stock soar since its investor day. The recent climb has helped push shares of Disney up 25% in 2019 and roughly 38% over the last 12 months, to help it outpace the overall Media Market’s 19.4% climb. Jumping back over the last five years, investors can see that DIS has crushed its industry’s average climb on its way toward record highs—which it hit last month.
Looking ahead, our current Zacks Consensus estimate calls for Disney’s second-quarter 2019 revenue to pop roughly 0.7% to reach $14.64 billion. This would come in just above last-quarter’s flat sales growth but mark a significant downturn from Q4 2018’s 12% top-line expansion. With that said, Disney’s performance at the box office can make year-over-year comparisons less important at times. The dramatic shifts become clear when you take into account the insane success of movies such as the recently-released Avengers: Endgame against box office bombs.
It is worth noting that the company’s full-year fiscal 2019 revenues are projected to surge 20%, driven by positive impact from its Fox acquisitions. Peeking even further ahead, Disney’s full-year fiscal 2020 revenue is expected to surge 16.6% above our current-year estimate.
At the bottom end of the income statement, DIS’ adjusted quarterly earnings are projected to sink 13.6% to $1.59 per share. Meanwhile, the company’s full-year EPS figure is expected to slip just over 4%.
The anticipated bottom-line declines can be attributed to the company’s continued spending on its direct-to-consumer push and more. The company has also seen its earnings estimate revision activity trend in the wrong direction as the DTC roll out looks poised to eat more heavily into near-term profits than originally anticipated.
Disney is currently a Zacks Rank #4 (Sell) based, in large part, on its negative earnings estimate revision activity. On top of that, shares of Disney have already surged over the last month, which means the expected Disney+ boost could already be priced-in, at least for now.
On top of that, DIS’ climb, coupled with its expected earnings declines, has Disney trading at 20.1X forward 12-month Zacks Consensus EPS estimates at the moment. This marks a significant premium compared to its 10-year median of 15.8X and its 10.3X low. In fact, shares of DIS are now trading just below their 10-year high.
Therefore, it might be time to wait for a better moment to jump into Disney stock. But analysts and Wall Street are high on DIS’ long-term outlook, driven by streaming, which includes Hulu, and more robust box office and theme park offerings. In the end, it is not hard to imagine Disney+ easily competing alongside, or even taking market share from Netflix, Amazon, and soon enough Apple AAPL, AT&T T, and others.
Disney is currently scheduled to release its second-quarter 2019 financial results after the closing bell on Wednesday, May 8. Make sure to come back to Zacks for a full break down of the company’s actual results then.
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