Walt Disney Co (NYSE:DIS) stock sees its biggest decline in the last 12 months. Should you consider buying the dip in Disney stock?
Media and entertainment giant, Walt Disney Co (NYSE:DIS) shares plunged more than 4% in yesterday's trade, its biggest fall in a single session over the last one year. Disney stock had opened higher than Wednesday's close yesterday, only to take a drastic turn mid-day after CEO Bob Iger's commentary on the fiscal 2017 earnings at the Bank of America Merrill Lynch Media, Communications & Entertainment Conference spooked the investors. DIS stock has already corrected more than 9%, massive by Disney standards, since its Q3 earnings release last month. Now, the massive correction begs the question, should you buy into the dip in Disney stock price?
Why exactly did Disney stock price nose dive?
Bob Iger speaking at the Bank of America Merrill Lynch conference said he expects the company's fiscal 2017 earnings will come roughly in line with that of fiscal 2016 earnings. The house of mouse reported a fiscal 2016 EPS of $5.73 which falls well below the average analyst estimate of $5.87 per share. This would mean the company's earnings growth would stagnate for the first time since 2009. Iger further added that lack of any blockbuster releases towards the end of 2017, the existing ESPN troubles and some expenses in fiscal 2017 related to the BAMTech acquisition have a role to play for the below par earnings. The recent Hurricane Irma is also likely to have a significant impact on the company's better performing Parks segment, as they have seen many cancellations.
DIS stock could be under further pressure as the stock's technical chart flashed a bearish Moving Average Convergence Divergence (MACD) crossover in the last trading session. The MACD line fell below the signal line indicating a bearish trend. Disney stock has its next support level at $95 mark which is just a few handles below the last close. However, Disney shares could soon be in for a rebound after a brief downward sojourn as the latest plunge has brought the stock very close to oversold territory. The Bollinger Bands indicator is already suggesting an oversold signal as the share price has breached the lower Bollinger Band in the last trading session. The Relative Strength Index (RSI) indicator measure presently stands at 32, just above the commonly used RSI oversold measure of 30. Generally, the combination of the above two momentum indicators is considered as a strong signal. If the weakness in Disney stock persists, then both indicators would be indicating an oversold signal suggesting the stock could soon bounce back.
Disney Stock Valuation.
The fiscal 2017 earnings outlook may not be that great as expected by the investors, but 2018 could be Disney's year. In his recent commentary at the Bank of America Merrill Lynch conference, Bob Iger emphasized that 2018 earnings could be stronger than 2017. He highlighted the fact that in FY 2018 the House of Mouse has a rich slate of movie releases including two Star Wars films and four Marvel films. Further, Shanghai Parks has seen a strong growth since being operational. The launch of Disneys ESPN-branded multi-sport video streaming service in early 2018 could be added tailwind in the future. Disney stock at this level is heavily undervalued based on forward earnings multiple of 14.89 which is below the minimum P/E ratio over the last 5 years, at 15.01. The average P/E ratio over the last 5 years stands at 20.11. Even going by the current sales multiple of 2.7, the stock is undervalued with the average 5 year P/S ratio at 3.01. Given the multiple synergies in 2018, DIS stock could be a good long-term buy.
Disney stock might have underperformed in 2017 until now but it could be a good long-term buy at this levels and present valuations are also attractive. The analysts are also bullish about the King of Content's long-term prospects. Marci Ryvicker of Wells Fargo recently upgraded his rating on DIS stock to outperform from market perform also raising his price target to $116 from $109, 19.5% upside from the last close. In his note to clients, he said " investors may need to start thinking about increasing exposure to those media cos. with solid streaming strategies, such as … Disney." Further, Disney also could be a good long-term dividend growth option. Disney shares have a current dividend yield of 1.61 and that could grow further as the dividend has been growing steadily with a 5-year dividend growth rate of 31.28%. Long-term investors should use this dip to buy into Disney shares.
Looking for fundamentally better stocks than Disney? Check out Amigobulls' top stock picks from the tech sector, which have beaten the NASDAQ by nearly 149%. Interested in automotive stock? Then, we also have our top picks from the auto sector, which have beaten the S&P 500 by over 241%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.