Can shares of Disney (DIS), which have risen 32% in twelve months, surge another 30%? According to BMO Capital analyst Daniel Salmon, that’s exactly what will happen.
The media conglomerate will report second quarter fiscal 2019 earnings results after Wednesday’s closing bell. Ahead of the results Salmon, who has an Outperform rating on the stock, raised his price target on Disney stock to $170.00 from $140.00. He says he expects not only an "upbeat quarter" when the company announce on Wednesday, but he expects positive outlook for the Q3 citing the success of blockbuster superhero hit Avengers: Endgame. And that’s just part of the story.,
As for the numbers themselves, though the quarterly estimates call for year-over-year declines on both revenue and EPS, that’s not where the focus is going to be. Details about the company’s streaming service, dubbed Disney+, and its growth potential is what will excite investors. The service, which is said to rival Netflix (NFLX), will cost $6.99 per month, or $69.99 for an annual plan. Disney’s entry in the realm of global streaming is long overdue.
The company’s ability to deliver a combination of original content and offerings from its extensive library, not to mention content it now owns via its Fox acquisition, is a potent catalyst. Still, on Wednesday the company will need to say all of the right things to convince the Street that its growth ambitions to compete with Netflix and Amazon (AMZN) as a full over-the-top streaming platform is not only on track, but worthy of $170 stock price.
For the three months that ended March, analysts expects the Burbank, Calif.-based company to earn $1.59 per share on revenue of $14.4 billion. This compares to the year-ago quarter when earnings came to $1.84 per share on revenue of $14.55 billion. For the full year, ending October, earnings are projected to decline 6% year over year to $6.66 per share, while full year revenue of $72.32 billion would rise 21.7% year over year.
The company is in the midst of a major transition, namely involving its Twenty-First Century Fox assets, which Disney has acquired last year. Disney finally closed the $71 billion deal during the second quarter on March 20. Disney CEO Bob Iger had warned his newly-combined staff of “challenging work of uniting our businesses.” He made good on this promise.
The company wasted no time implementing new leadership structures in Fox’s film and television units, while also trimming headcount at the Century City studio. Analysts will want to know the status of the business integration. In the Q1 conference call, Iger described the company’s direct-to-consumer (DTC) initiatives “our No. 1 priority.” Adding, “We remain focused on the programming as well as the technology to drive the success of our DTC business.”
What the company plans to do with its prized Fox asset remains to be seen. But enhancing the DTC capabilities will be at the center of it. Note, Disney now owns 60% of Hulu — an asset which the company previously cited as a means to raise future prices. And with talks of AT&T (T) looking to sell its 10% stake, Disney’s ownership could grow to 70% with Comcast (CMCSA) owning the remaining 30%.
This means, the company’s Disney+ streaming service, combined with Hulu could soon be a force to be reckoned with. Will that be worth $170 per share? It’s a matter of when.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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