Disney to Report Q3 Earnings: ETFs in Focus

Disney DIS will report third-quarter fiscal 2020 results on Aug 4, after the closing bell. 

Let’s take a look at this entertainment giant’s fundamentals ahead of its earnings release.

Disney has an unimpressive earnings surprise history. Its bottom-line topped estimates in two of the trailing four quarters and missed the same in the other two, the average negative surprise being 7.9%. The Zacks Consensus Estimate for the fiscal third quarter has widened from a loss of 35 cents to a loss of 43 cents over the past 30 days. The company reported earnings of $1.35 in the prior-year quarter. The consensus mark for revenues stands at $12.65 billion, indicating a decline of 37.5% from the year-ago period’s reported figure. The stock has a VGM Score of D and belongs to a bottom-ranked Zacks industry (bottom 6%).

Coronavirus Impact to be Visible on Results

The coronavirus outbreak has so far largely impacted consumer spending. Major retailers, restaurants and hotels, theme and amusement parks plus cruises in the United States had to shut down operations domestically as well as abroad.

Also, the pandemic introduced some changes to the lifestyle and preferences of Americans. Most surveys found that even as the U.S. economy reopens in phases and social-distancing restrictions are being eased, a huge portion of the population will try to minimize human-to-human contact.

In such a scenario, Disney’s third-quarter fiscal 2020 results are expected to reflect the pandemic adversities through weakness in advertisement business, closures of parks and entertainment division as well as cancellation of sports events. In this regard, Disney had to close its California and Florida parks in the to-be-reported quarter due to the coronavirus outbreak. Meanwhile, Disney’s theme parks in Shanghai and Hong Kong were reopened on May 11 and Jun 18, respectively, with reduced capacity, adhering to strict social-distancing norms.

Meanwhile, the company’s video streaming platform Disney+ is expected to provide some support to Disney’s earnings results as people shifted to in-house entertainment modes amid the pandemic.

Our Methodology

Our proven model doesn’t conclusively predict an earnings beat for Disney this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of beating estimates. But that’s not the case here as elaborated below.

Disney currently has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -26.54%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ETFs in Focus

The anticipated weak results might hugely affect ETFs, especially those that have the largest allocation to this media and entertainment conglomerate.

iShares Evolved U.S. Media and Entertainment ETF IEME

This actively-managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 90 stocks in its basket, Disney occupies the fifth position in the basket with 4.7% share. The fund has accumulated $10.7 million in its asset base and charges 18 bps in annual fees (read: ETFs to Play New Trends Triggered by COVID-19).

iShares U.S. Consumer Services ETF IYC

This ETF offers exposure to U.S. companies that distribute food, drugs, general retail items and media by tracking the Dow Jones U.S. Consumer Services Capped Index. It holds 153 stocks in its basket with Disney taking the seventh spot at 4.3%. The fund amassed $998 million in its asset base. It charges 42 bps in annual fees from investors (read: Online Sales to Boost Amazon Q1 Earnings: ETFs to Buy).

Communication Services Select Sector SPDR XLC

This ETF offers exposure to the communication services sector of the S&P 500 Index and accumulated $10.19 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket with Disney occupying the 10th position at 4.3%. The product charges 13 bps in annual fees (read: More Run for Tech ETFs After Sizzling FAAG Earnings?).

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The Walt Disney Company (DIS): Free Stock Analysis Report
iShares U.S. Consumer Services ETF (IYC): ETF Research Reports
iShares Evolved U.S. Media and Entertainment ETF (IEME): ETF Research Reports
Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports
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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.

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