February 24, 2021

Market and Financial News Aggregator

Disney Stock: Is It A Buy Right Now, After A Big Earnings Surprise?

5 min read

Walt Disney (DIS) cleared a new buy point after coming back more than 140% from its post-coronavirus crash lows in March.




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It’s been a wild ride on Wall Street since February 2020, as the stock market fell into a bear amid the coronavirus crash. Disney stock got slammed as the Dow Jones company closed its theme parks and suspended Disney Cruise Line departures.

Shift For Dow Jones Disney Stock

And its quarterly results showed some of those ill effects. But now it’s looking forward as the world tries to shift into a post-coronavirus mode, even though Covid-19 cases and deaths persist.

Though Walt Disney World and Shanghai Disneyland have been open, Paris Disneyland and Hong Kong Disneyland are currently closed. But Disney’s California theme parks and resort hotels have been closed since mid-March.

On Sept. 28, Disney announced it’s axing 28,000 theme park jobs. It said in a statement that coronavirus uncertainty was “exacerbated in California by the State’s unwillingness to lift restrictions that would allow Disneyland to reopen.” (In November, Disney said it will lay off another 4,000 workers.)

In October, Disney announced a major reorganization, which boosted shares 3% the next day.

In November, Disney+ made Nielsen’s Top 10 list of streaming titles for the first time ever, as the second season of its hit series “The Mandalorian” kicked off on Oct. 30.

And late Thursday, the media giant reported quarterly earnings and sales that beat Wall Street targets.

Does that mean Disney stock is a buy right now? Read on to find out.

Good News For Disney+ Fans

On Oct. 30, season two of the critically acclaimed Star Wars series “The Mandalorian” premiered. That could have the potential to drive more subscribers to Disney+.

At its Dec. 10 investor day, Disney said Disney+ subscribers were at 86.8 million as of Dec. 2. That’s up from 73.7 million in early October and 60.5 million in early August. Including Disney+, Hotstar, Hulu and ESPN+, the company’s streaming services have more than 137 million subscribers.

This year, Disney+ will expand to Eastern Europe, South Korea, Hong Kong and other markets.

The company now expects to have 230 million-260 million Disney+ subscribers by 2024, up from its prior estimate of 60 million-90 million for the same time frame, with global subscriptions across all services reaching 300 million-350 million. Netflix (NFLX), by comparison, has 195.15 million subscribers.

Disney plans to roll out a new Star-branded streaming service internationally this year, tapping content from ABC Studios, Fox Television, FX, Freeform, 20th Century Studios, Searchlight and other Disney-owned assets.

New CEO Takes The Helm

Bob Chapek, chairman of Disney Parks, Experiences and Products, was named new chief executive after Bob Iger stepped down in February. Iger will stay on until the end of 2021 as executive chairman and direct Disney’s creative endeavors.

Under Iger’s 14-year-plus tenure, Disney stock soared more than 400%, or about 12% annualized. He revamped the theme parks, brought Star Wars, Marvel and Pixar into Disney’s movie universe, and launched Disney+.

Disney+ Continues To Grow

After the close Thursday, Disney reported earnings per share of 32 cents on revenue of $16.25 billion. Analysts expected a 45-cent loss on $15.8 billion in sales, according to Zacks Investment Research.

Parks revenue sank 53% to $3.59 billion. But direct-to-consumer revenues, which include Disney+ and other streaming services, jumped 73% to $3.50 billion.

On the earnings conference call, Chapek said the reopening of parks depends on vaccination rates but added he’s pleased by future bookings.

Disney+ subscribers rose 9% to 94.9 million as of Jan. 2, up from 86.8 million on Dec. 2 and 258% from a year ago. In March, monthly fees will increase by $1 to $7.99 in the U.S. and by 2 euros to 8.99 euros a month in Europe, which will likely boost revenue.  ESPN+ subscribers are up 83% on the year to 12.1 million; Hulu is up 30% to 39.4 million.

 

Humble Beginnings

It’s hard to believe the $261 billion market cap behemoth started out in 1923 as Disney Brothers Cartoon Studio, by Walt and his brother, Roy O. Disney. Highlights along the way included Disney’s first sound film, “Steamboat Willie,” in 1928, its first feature-length animated film, “Snow White and the Seven Dwarfs” in 1937, and a foray into television in 1950.

In 1955, Walt’s theme park came into fruition as Disneyland in Anaheim. A second location in Orlando, Fla., was announced in 1965. The following year, Walt passed away, leaving Roy in charge. Walt Disney World opened in 1971, two months before Roy’s death. But the company kept growing.

During the fiscal year ended in September, the theme park and media giant generated nearly $70 billion in sales.

Disney Stock Fundamentals — And Earnings

IBD Stock Checkup assigns Disney a 37 Composite Rating, which combines key fundamental and technical metrics in a single score. The media giant ranks 13th in the 26-stock Media-Diversified group, based on that rating.

A 14 Earnings Per Share Rating reflects a five-year earnings growth rate of -7%, which includes a flat result in fiscal 2017, a 19% decline in fiscal ’19 and a 65% drop for fiscal ’20. Analysts now expect EPS to fall 28% in the current fiscal year ending in September, followed by a 222% jump in fiscal 2021, according to FactSet.

Is Disney Stock A Buy?

After breaking out from a flat base and rising to record highs in November 2019, Disney stock tumbled more than 40% during the coronavirus market crash. It found a bottom on March 18 but has made its way back near its peak.

The stock is well extended from a 131.46 buy point of a double-bottom base, according to MarketSmith chart analysis. On Nov. 9, following President-elect Joe Biden’s win, shares gapped up and soared 12%. The breakaway gap yielded a higher buy point of 142.11, with the buy zone topping out at 149.22.

Disney stock is extended from that entry as well. On Dec. 8, it climbed past a 153.51 buy point of a deep, yearlong base. That buy range went up to 161.19. The 14% surge on Dec. 11 sent the stock to a new high.

On Feb. 8, Disney led the Dow Jones Industrial Average with a 4.9% jump to a new high. Shares cleared a 183.50 buy point of a five-week flat base in volume 38% higher than usual.

So Disney stock is in buy range, which goes up to 192.68. The base is still first stage, which means the stock could have plenty of room to run.

The market is in a confirmed uptrend, which means investors can buy and add stocks at proper entries. Note that Disney’s 14 EPS Rating and 37 Composite Rating are well below the 80 minimum of most leading growth stocks.

Read The Big Picture for detailed daily analysis of what’s going on in the stock market.

Follow Nancy Gondo on Twitter at @IBD_NGondo

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2021-02-11 20:57:43

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