- Entertainment Giant, The Walt Disney Company is scheduled to report its Q4 earnings on Nov 10.
- Wall Street expects the company to report EPS of $1.16 on revenue of $13.52B.
- Can the company cap off the year with a strong performance and reverse the downtrend in the Disney stock price?
Walt Disney Co. (NYSE:DIS) is set to report its Q4 earnings on November 10th, after the bell. The company is going into the final earnings report of its fiscal year on a strong note, with a 9.1% YoY growth in topline and a 16.7% growth in earnings through the first 9 months. The strong performance through the year has failed to boost Disney stock, which is down 13.9% year-to-date, significantly underperforming the S&P 500 (INDX:SPAL), which is up 1.06% in the same timeframe. Can the company finish the year with a strong performance and reverse the downward trend in the Disney stock price?
Disney Earnings Expectations and Earnings Whisper
Wall Street analysts expect the company to report an EPS of $1.16 on revenue of $13.52B, implying a 3.3% decline in EPS and a stagnant top line in comparison to the year-ago quarter. This will be a deceleration from the 9% top line growth the entertainment juggernaut has reported through the first three-quarters of the current fiscal. The Estimize community expects Disney to report a 4 cent earnings surprise on revenue of $13.56B. The case for an earnings beat is strengthened by an earnings whisper of $1.18, implying a 3 cent EPS beat. But, will an earnings beat be enough to swing the bearish momentum in Disney stock? (See also: Why Walt Disney Co Stock Won;t Be Under $90 For Long)
Disney Earnings History And Post-Earnings Stock Price Reaction
Walt Disney company has beaten analyst EPS consensus in 3 of the last 4 earnings announcements, delivering an average earnings surprise of 3.4% over the last four quarters. However, the post-earnings stock price reaction hasn't been very encouraging, with Disney stock posting an average loss of 1.05% in the trading session immediately following the earnings announcement. The stock fell by over 4% in one trading session after reporting an earnings miss for Q2 2016. Based on the recent earnings history, while a beat will not guarantee a rally, a miss could certainly lead the stock lower. Hence, it will be important for the company to not only beat on the Q4 numbers, but also deliver a guidance ahead of estimates. The current Wall Street Consensus anticipates an EPS of $1.61 on revenue of $15.75B for the December 2016 (Disney's Q1 2017) quarter.
A Deeper Look At Disney Segments
Looking at the operating segments individually, 'Studio Entertainment' will continue to be the growth engine for the company. The Studio segment should continue to ride the wave of strong releases, many of which continued to be 'In release' through the major part of Q4. The company continues to dominate box office charts, taking the top 4 spots on the yearly collections charts, with 'Captain America: Civil War', 'Finding Dory', 'Zootopia' and 'The Jungle Book (2016)'. With Finding Dory, which is still in theatres, becoming the latest billion Dollar grosser, the Studio segment should be able to maintain its momentum from the first 3 quarters. However, tough comps ahead (from q1 2017) will definitely slow down the YoY growth rate for the Studio segment going forward.
The 'Parks and Resorts' segment had an uptick in topline growth in the June quarter, with growth rising to 6%, after having fallen to below 5% in Q2 2016. With the Shanghai Disneyland being in operation for the entire Q4, the impact could be significant on the segment's growth. (See also: Is It Time To Sell Walt Disney Co Stock In The Face Of New Challenges?)
Coming to the 'Media Networks' segment, subscriber losses at ESPN will once again be in focus. These subscriber losses have been one of the prime reasons for sending Disney stock lower. Based on recent reports of 621,000 subscriber losses at ESPN, the downward pressure on Disney stock could well continue. However, the strength in the studio segment (2017 launches) and Resorts segment should make up for these declines and drive Disney's overall growth. Also, It is noteworthy to point out that in spite of the worries surrounding ESPN, the Media Networks segment has expanded its top line in 7 out of the last 8 quarters. Moreover, the company has been taking steps like its investment in BAMTech and an OTT ESPN, service, which should help to counter the decline in ESPN revenues.
Investors should buy into any ESPN driven post-earnings decline in the Disney stock price as the current valuations are compelling and the risks around ESPN subscriber losses are overblown. The decline in ESPN revenues will be more than offset by the growth in the Resorts and Studio businesses. Disney presents an attractive long term investment opportunity, given the opportunities ahead in its Studio division (Star Wars:Rogue One release will kick off the new launches) and the steady growth in its Parks and Resorts business. Long-term investors should buy into the stock and buy more in case of a post-earnings dip in the Disney stock price.