North America

Earnings Preview: Walt Disney Q3 2017 (DIS)

By: Craig Bowles

Overview

Walt Disney Co. (DIS) is slated to report 3Q 2017 earnings after the bell on Tuesday, August 8th. The earnings release is expected at approximately 4:15 p.m. ET followed at 4:30 p.m. with a webcast presentation available through Disney Investor Relations. Disney’s Media Networks includes sports channel ESPN and ABC. Parks and Resorts include Walt Disney World Resort in Florida and the Disneyland Resort in California, as well as the Disney Cruise Line. Films are distributed under the Walt Disney Pictures, Pixar, Marvel, Touchstone and Lucasfilm banners. Disney’s Consumer Products segment publishes and sells products based on the company’s intellectual property — licensing characters from its films, TV shows and other creations to third parties. The media and entertainment giant is a member of the Dow Jones Industrial Average (DIA) and could therefore influence direction of the index futures and other broad market gauges.

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS) Excluding Items: The Street estimate is $1.56 (range $1.49 to $1.65). (Source: Yahoo! Finance) Consensus was $1.70 three months ago.
  • Revenues: Analysts expect an increase of 1.2% y/y to $14.44 bln (range $14.01 bln to $14.89 bln).
  • Price/Earnings of 19.2 compares to a 5-year average of 19.6; Price/Book 3.9 compares to a 5-year average of 3.1; Price/Sales 3.2 compares to a 5-year average of 2.9, Price/Cash Flow of 14.8 compares to a 5-year average of 15.6. Dividend yield of 1.4% compares to a 5-year average of 1.3%.
  • Analysts remain bullish on Disney with 15 (17 last qtr) Buy, 13 Hold, and 4 Sell ratings. (source: MarketBeat.com)
  • Insider sold a net 804,338 shares the last three months and sold a net 1,069,113 shares in the past year. (source: NASDAQ.com) Disney bought back $7.5 billion in stock in 2016 and is expected to buy back $6–$8 billion of its stock during fiscal 2017.
  • Disney is compared to other entertainment companies with quarterly results possibly impacting Viacom (VIA) and Time Warner (TWX).
  • Disney shares have a 1-day average price change on earnings of 3.20%. Options are pricing in an implied move of 3.13% off earnings.

Recent News

  • 07/31: Lyft and Disney launch ‘Minnie Van’ on-demand ride service at Walt Disney World, according to a post on TechCrunch.com.
  • 07/28: Marty Sklar, a central figure in the development and expansion of Disney theme parks around the world, died at age 83.
  • 07/17: Disney is set to begin talks over its contract with cable operator Altice USA, which expires this fall. The deal will be the first of a series of new contracts Disney will negotiate with pay-TV providers that will allow it to offset subscriber declines at ESPN, according to a post on WSJ.com.
  • 07/24: Credit Suisse doesn’t expect Disney to sell itself, but rumors will continue, according to a post on Barron’s.com.
  • 07/24: Guggenheim has a favorable view of Disney’s plans for further theme-park improvements and expanding its California assets, according to a post on Barron’s.com.
  • 07/05: Morgan Stanley thinks the movie studios should consider in-home releases as a way to boost revenue. Such early-release movies could cost viewers $30 to $50 a pop, according to a post on Barron’s.com.

Technical Review

Disney’s stock had risen for four years without a correction to the August 4, 2015 all-time high at $122.08 and then fell 20% before the month was finished. After retesting the high in November 2015 and having a similarly sized pullback, it’s understandable that investors sold some shares after nearing that resistance area at the end of April. The current balance area is centered around $108 and the next is $96. (Chart courtesy of StockCharts.com)

Summary

Disney’s ESPN continues to be a drag with the average age of baseball viewers at 57 years old. Fiscal 2018 has Star Wars, Marvel, and Pixar films planned. Insiders sold heavily the past three months and selling into weakness is never a good sign. Increased buybacks have given support on pullbacks. The company beat/missed earnings expectations by an average of 6c the past four quarters. Estimize consensus for an EPS excluding items of $1.58 on revenue of $14.638 bln compares to analyst consensus of $1.56 on revenue of $14.44 bln.

 

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