Walt Disney Co stock hit a new 52-week high recently. Is DIS stock headed higher?
Shares of Burbank, California-based Walt Disney (NYSE:DIS) made a decent start to 2017, after a forgettable performance in 2016. DIS stock created a new 52-week high yesterday's trading session reaching $113.16 a share, and eventually closing at $112.71. Yesterday's high took DIS stock's YTD gains to around 8.5%, a much-improved performance from 2016 in which DIS stock registered a slightly negative return. DIS stock has been on a recovery path, gaining more than 21% in the last 6 months alone.
The recent earnings from the house of mouse had nothing in it for the investors to cheer, with a decline in both revenue and earnings. However, Walt Disney Co (NYSE:DIS) stock's bullish outlook got much more impetus after record openings of its latest release "Beauty and The Beast". Now with DIS stock trading near new high, a common question for investors is whether the stock is a buy near new highs? Does DIS stock has still more upside left? Let's take a closer look.
Analysts Remain Overly Bullish On Disney Stock.
The majority of the investment firms have a positive outlook on DIS stock. According to Schaffer's investment research, only one analyst has a sell rating compared to 13 of 20 analysts with a buy rating. The bullish analysts take got further boosted when Walt Disney's latest production "Beauty and the Beast" set a new record for March openings. According to a Barron's post, Piper Jaffray’s Stan Meyers believes that the good news for the media giant doesn't stop here. To quote Stan Meyers:
"Given strong momentum, wide appeal, and limited direct competition, we expect the film to cross the $450M mark domestically, ahead of our $400M estimate…Beauty and the Beast is on track to cross $1B worldwide after a ~$350M opening weekend, further offsetting tough comps related to The Force Awakens and Zootopia. We continue to be buyers of Disney as the tentpole heavy film slate continues to drive significant value in the Studio, Consumer Products and Theme Park divisions. We reiterate our OW rating and $130 PT"
Also, DIS stock got a recent rating upgrade from Guggenheim analyst Michael Morris, who updated his rating from neutral to buy, hiking his price target on Disney stock from $118 to $128. Morris too is confident about the entertainment behemoth's studio division and is of the view that related consumer products surge and theme park updates would usher new expansion cycle for Disney. His renewed optimism is not offset by the media networks issues, especially the ESPN numbers. The initial response for 'Beauty and the Beast' has stepped up optimism around DIS stock. Remaining releases this fiscal year include Guardians of the Galaxy 2 and Pirates of the Caribbean 5 in May and Cars 3 in June which further increase the expectations from the entertainment giant's studio division.
ESPN Numbers Are Still An Issue.
A recent Seeking Alpha post takes a bearish stance on Disney stock against the popular opinion citing declining ESPN numbers as the sole reason notwithstanding the success of its other divisions. The author of the post goes as far as to suggest investors to start a short position on DIS stock. The post highlights the fact that ESPN registered another loss of 422,000 subscribers in February and "its overall total is now below 87.5 million, a 13% decline from its peak five years ago." The author also suggests a drastic drop in valuation of ESPN over the past few month as a grave concern. However, in a recent interview with Barron's, Walt Disney Co (NYSE:DIS) CEO, Bob Iger put up an optimistic face pointing out that "ESPN is already being included in most other over-the-top offerings." Bob Iger states "A lot of the platforms out there now are only starting to be counted by Nielsen. That’s going to help."
Apart from the declining ESPN subscriber numbers another reason to worry is the drop in cable money this year "because of a big step-up in the cost of pro basketball rights". However, the Street believes that the rising fees charged to cable carriers should keep revenues rising. The ESPN numbers along with the drop in cable money seem to be the only major drawbacks for the house of mouse. This could be offset by better performing other divisions of Disney. As highlighted in the above Barrons post, the park business revenue is expected to rise 8.7% after 5% growth last year on account of ticket price hikes, "park expansions, and the swelling contribution from Shanghai Disney."
Another point to note here is the short interest in Disney shares. In fact, Schaffer's investment research states that "Short interest on Walt Disney Co (NYSE:DIS) is now near the lowest level it's been in at least 14 years, declining by roughly 66% over the past year." Latest short interest numbers suggest only less than 1% of the float constitutes shorted shares, though the short interest value has seen a marginal increase from the previous reporting period. The Seeking Alpha post author's view to take a short position solely based on ESPN numbers is little too much to ask for.
Summing It Up.
Walt Disney stock has made a good start to the year outperforming the S&P 500 (INDX:SPAL), which it had grossly underperformed in 2016. With renewed optimism, Disney stock makes a good case for long-term investors to consider. However, ESPN numbers remain a drawback on the new positive Disney story. Further, technicals suggest DIS stock could be in for a near-term correction as two widely used technical indicators, the Relative Strength Index (RSI) and the Bollinger Bands indicate that DIS stock has entered the overbought territory. Overall DIS stock is a good long-term buy considering a good show by the entertainment giant's Studio, Consumer Products and Theme Park divisions is on the cards.
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