Walt Disney Co: This Could Send Disney Stock Soaring

Walt Disney CoBig Quarter for Disney Stock?

Walt Disney Co (NYSE:DIS) stock bears felt pretty good toward the end of last year, but not so much since entering 2016. In the past three months, Disney stock climbed a solid 18.5%.

The reason is simple—Disney is a solid company. Sentiment may change, but companies that continue to deliver a solid performance will be eventually rewarded.

Disney is reporting earnings today and based on expectations, analysts have high hopes for the company.

In the second quarter of the company’s fiscal 2016, analysts expect Disney to deliver $1.40 in earnings per share, which would represent a 13.8% improvement year-over-year. Wall Street also expects Disney’s top line to grow six percent to $13.21 billion. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed May 9, 2016.)

Disney has quite an impressive track record when it comes to earnings. In the past four quarters, the company has beaten analysts’ earnings-per-share (EPS) estimates every single time.

Note that in the previous reporting quarter, Disney had its major release Star Wars: The Force Awakens. In just 20 days after being released, the movie had surpassed Avatar to become the highest-grossing film of all time in the U.S. Bringing in more than $2.0 billion at the box office worldwide, the movie is a cash machine for Disney. (Source: “Star Wars: The Force Awakens,” Box Office Mojo, last accessed May 10, 2016.)

While the movie did great, investors didn’t really award Disney stock after the release. Disney shares climbed toward the release of the latest Star Wars installment, but started falling since late November. Now, the stock is heading back upward again.

In this reporting quarter, box office success will likely continue for the company. Disney released its 3D animated comedy-adventure film Zootopia on March 4. The movie has generated $328 million at the domestic box office and $630 million internationally. Surpassing $900 million in worldwide box office sales, Zootopia is the No. 1 grossing release of 2016 to date. (Source: “Zootopia,” Box Office Mojo, last accessed May 10, 2016.)

Going forward, the company has quite a few things going for it. Its new movie The Jungle Book experienced huge success on its opening weekend in April, and another Star Wars movie, Rogue One: A Star Wars Story, is scheduled to be released in December and is almost certainly going to be another huge hit.

But let’s not forget about the first Disney theme park in Mainland China—the Shanghai Disney Resort—which will open next month. While these won’t show up on today’s earnings report, they would give Disney stock investors something to look forward to.

Of course, not everything is going perfectly at Disney. The strongest argument from Disney stock bears has been its ESPN business. And let’s be honest, the bears do have a point here.

You see, within Disney’s empire, Media Networks is the biggest revenue contributor. Within Media Networks, Cable Networks is the largest segment. In the previous reporting quarter, revenue from Cable Networks increased, but operating income decreased five percent. The reason was none other than the declining profitability of ESPN.

However, during the previous earnings conference call, the company’s CEO, Bob Iger, mentioned, “In the last couple of months we’ve actually seen an uptick in ESPN subs, which is encouraging.” (Source: “Q1 FY16 Earnings Conference Call,” Walt Disney Co, February 9, 2016.)

The ESPN segment will continue to be a focus in this earnings report and during the company’s conference call. Disney will need to find ways to address ESPN’s higher programming costs and the overall declining subscriber base in recent years.

The Bottom Line on Disney Stock

As you have seen in the past couple of weeks, the stock market cares about not only what a company has done in the past, but also its guidance for the future. Disney, however, doesn’t really provide guidance on its future financials. That means Disney stock investors will need to draw their own conclusions on where the company’s top and bottom lines would go next. Still, if the company can address the issues in its ESPN business, the outlook for Disney stock could be bright.