Stock of the day 04/11/2015 – The Walt Disney Co

It’s been a turbulent few months for Walt Disney; can the House of Mouse rematch its all-time highs following its fourth quarter results on Thursday?

Up until the beginning of August Disney was having the kind of year most stocks can only dream of. Hitting new record highs every few days by February the company has crossed the $100 pound mark for the first time in its history; by August 4th it had reached a peak of $122. However, that was all about to change with its third quarter results.

Investors had a rather violent reaction to Disney’s Q3 figures; despite record quarterly revenue of $13.1 billion (a smidge lower than expected) the stock fell by 11% in the aftermath of the company’s results. The main issue was falling subscription numbers in its cable networks (including ESPN and ABC Family), a division that accounted for 45% of Disney’s revenue in the third quarter. This is a phenomenon not unique to Disney but the cable sector as a whole and one that Disney claimed may reduce its profits by a few percentage points.


(Source: IT-Finance.com 04/11/2015)

Unluckily for Disney hot on the heels of its post-Q3 decline came the market-eroding issues of August and September, helping push the stock to a near-7 month low of $90.27 on Black Monday. Yet with analysts largely in agreement that the post-release plunge was an overreaction, as the dust settled on the China-inspired chaos Disney resumed its impressive climb. Currently sitting at $115.55 (IT-Finance.com, 04/11/2015) Disney managed to jump $15 across October and the start of November, with its $122 all-time highs firmly in sight.

Looking to its Q4 report and there are arguably two main issues. Firstly, how well is Disney mitigating the declining subscriptions to its cable networks, ESPN especially? CEO Bob Iger was keen back in August to reassure investors that the fall in subscriptions was ‘modest’ and that EPSN is well-placed to deal with the changing TV landscape going forwards, so progress on that front will be important.

The second issue, to put it simply, is Star Wars; the December release of the much-anticipated 7th instalment in the series is expected to post huge, record breaking numbers when it opens, so any guidance on just how well Disney expects the film to do could be key. And whilst the main force (pardon the pun) of Star Wars’ figures won’t be felt until Q1 in January, already toys from the film have gone on sale, with Hasbro (who produces the toys) stating sales are at the upper end of estimates.

In terms of the pure figures, analysts are expecting earnings per share of $1.14 against $0.89 year-on-year (with Disney beating earnings estimates for the past 4 quarters), alongside a 9.4% rise in revenue to $13.55 billion.

Walt Disney has a consensus rating of ‘Buy’ alongside an average target price of $116.81.