North America

Earnings Preview: Walt Disney Q4 2017 (DIS)

By: Craig Bowles

Overview

Walt Disney Co. (DIS) is slated to report 4Q 2017 earnings after the bell on Thursday, November 9th. 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 $1.14 (range $1.09 to $1.35). (Source: Yahoo! Finance) Consensus was $1.30 three months ago.
  • Revenues: Analysts expect an increase of 1.0% y/y to $13.27 bln (range $12.79 bln to $14.09 bln).
  • Price/Earnings of 17.3 compares to a 5-year average of 19.6; Price/Book 3.5 compares to a 5-year average of 3.1; Price/Sales 2.8 compares to a 5-year average of 2.9, Price/Cash Flow of 12.5 compares to a 5-year average of 15.6. Dividend yield of 1.6% compares to a 5-year average of 1.3%.
  • Analysts remain bullish on Disney with 15 Buy, 14 Hold, and 4 Sell ratings. (source: MarketBeat.com)
  • Insider bought 8,206 shares the last three months and sold a net 1,078,785 shares in the past year. (source: NASDAQ.com) Disney bought back $7.5 billion in stock in 2016 and increased the 2017 buyback to $9–$10 billion from $6–$8 billion in May.
  • 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 2.54%. Options are pricing in an implied move of 3.88% off earnings.

Recent News

  • 10/12: Guggenheim downgraded Disney to Neutral from Buy citing increased caution toward pay-TV ecosystem trends and concern that investor expectations are too high, according to a post on CNBC.com.
  • 10/12: Walt Disney Co developed the Movies Anywhere service to provide a single app and website where customers can find movies they have purchased from Comcast, Universal Pictures, Time Warner, Warner Bros, Twenty-First Century Fox, 20th Century Fox and Sony Pictures Entertainment, according to a post on Reuters.com.
  • 10/09: RBC upgraded Disney to Top Pick from Outperform citing a turning point with ESPN approaching <20% of earnings while the Media segment strategy focuses on the DTC efforts and affiliate renewals. They further explained that non-media DIS remains a global leader in content that’s executing well and deserving of high multiples, according to a post on Barron’s.com.
  • 09/07: Disney CEO Bog Iger said the company will report earnings per share this year “roughly in line” with the $5.72 of 2016 vs consensus of $5.88. The CEO also revealed at the conference the media giant’s Marvel and Star Wars titles will go exclusively to the new Disney streaming platform, which is set to launch in late 2019, according to a post on CNBC.com.
  • 08/08: Disney announced it intends to remove its movies from Netflix and plans to launch a branded direct-to-consumer streaming service in 2019, starting in the U.S. and expanding globally. It also will launch an ESPN video streaming service in early 2018, according to a post on CNBC.com.

Summary

Expectations are low for media companies amid fundamental deterioration, so Bernstein suggests a positive earnings report will be if not as bad as expected. Given this environment, Bernstein lists Disney among the few media stocks worth consideration. 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 halted the heavy selling and bought some shares the past three months with the stock finding support at $97. Increased buybacks probably have helped support the stock, so it’ll be interesting if they plan to spend another $9-$10 bln in FY2018. The company beat/missed earnings expectations by an average of 6c the past four quarters. Estimize consensus for an EPS excluding items of $1.22 on revenue of $13.292 bln compares to analyst consensus of $1.14 on revenue of $13.27 bln.

 

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