By Craig Bowles
Walt Disney Co. (NYSE:DIS) is slated to report 2Q 2014 earnings after the bell on Tuesday, May 6th. The earnings release is expected at approximately 4:15 p.m. EST, followed at 5:00 p.m. with a webcast presentation available through Disney Investor Relations. The media and entertainment giant is also a member of the Dow Jones Industrial Average (NYSEARCA:DIA), and could therefore influence direction of the index futures and other broad market gauges.
Outliers & Strategy
- Earnings Per Share Excluding Items: The current Street estimate is $0.95 (range $0.91 to $1.00) (Source: Yahoo Finance). Estimates were increased by 3c during the last three months, and Disney has beaten estimates in each of the last four quarters.
- Revenues: Analysts expect an increase of 6.4% y/y to $11.23 bln (range $10.90 bln to $11.46 bln).
- Price/Earnings of 21.6 compares to a 5-year average of 17.2; Price/Book 3.1 compares to a 5-year average of 2.1; Price/Sales 3.1 compares to a 5-year average of 2.1, so valuations are relatively rich.
- Insiders have sold 1,653,240 shares the last six months, but Disney is more than offsetting the selling by increasing company stock buybacks from $4 bln to $6-8 bln in 2014.
- Keep an eye on advertising revenue. Rival Viacom (NYSE:VIA) reports before Disney, and showed advertising growth of 3%. Time Warner (NYSE:TWX) reported a 14% increase in revenues from its Warner Brothers movie business.
- Disney shares have a 1-day average price change on earnings of 3.26%. Options are pricing in an implied move of 3.28% off earnings.
- 04/29 Disney, along with its joint venture partner Shanghai Shendi Group, has decided to invest an additional $800 million (5 billion Yuan) to speed up the expansion of Shanghai Disney Resort. Originally, the total investment was $4.4 billion.
- 04/29 A seventh installment of "Star Wars" is scheduled for December 2015, according to a post by the New York Times.
- 04/29 Wunderlich Securities says Disney-owned ESPN is worth $50.8 billion, with cash flow that is expected to reach $4.5 billion this year, up 39% from five years ago, according to a post on Forbes.com.
- 04/21 Disney is trying a centralized FastPass+ system, where guests can reserve as many as three rides or experiences in advance, according to a post on Fool.com.
- 03/24 IMAX® and Disney expand relationship with multi-picture deal.
Disney shares consolidated from the late 1990s to 2012, and have quickly doubled since breaking out. Disney has more than doubled the S&P performance over the last two years, but has linked up with the Nasdaq since mid-March. Current support and resistance is $77-$80. While the downside worry is a retest of the 200-day moving average, that tends to happen in the seasonally weaker second half of the year around October. (Chart courtesy of StockCharts.com)
Disney analysts remain optimistic, and talk glowingly about the company's growth prospects for animation studio content into 2015. The company has ramped up its buyback program, which more than offsets any insider selling. The stock normally tests the 200-day moving average once each year, and hasn't since late 2012, so seems a little overdue, but is seasonally more likely in the next 4-month cycle between lows. EPS expectations for the current release have increased 3c over the last three months, and Disney has beaten estimates the last four quarters. An earnings beat by more than 3c would be better than what is normally expected, and could see a favorable move in the stock if revenues are even slightly above estimates. Revenues of $11.2 bln are the middle of analyst estimates, so reporting above $11.3 would allow traders to focus on earnings.
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