Will Disney break through US$130 per share on Q3 earnings?
Although Disney’s share price remains in an uptrend, IG analyst Kyle Rodda says the positive momentum appears to have stalled.
US entertainment giant The Walt Disney Company (NYSE: DIS) is scheduled to release its third quarter 2020 financial results after the close of regular trading on Tuesday 04 August 2020.
Below, we highlight three key considerations that investors should pay attention to ahead of Disney’s upcoming earnings report.
Disney stock price has risen 25% since April 2020
Disney’s share price has recovered nearly 25% since April 2020, in line with the wider global stock market uptrend.
The media conglomerate’s share price has been able to rebound in the last two months, thanks to the release of the filmed version of the popular musical ‘Hamilton’ over the summer on its streaming service Disney +, as well as the resuming of NBA on 30 July 2020.
Additionally, its theme parks in Paris and Florida have also reopened for business, albeit on a limited scale.
However, Disney’s positive stock price trajectory still pales in comparison to rival video streaming platform Netflix – whose share price burgeoned over 35% during the same period.
As of Monday 03 August July 2020, Disney shares are trading at US$116.44 per share in pre-market hours.
This share price represents a price-to-earnings ratio of around 39.51, which is well above the stock’s five-year average of 18.90. This figure seems to imply that the stock could be overvalued.
Throughout the month of July, the stock has been trading no less than a PE ratio of 37.90.
Analysts say Disney's growth momentum has waned
Across the board, Disney currently has a consensus rating of ‘hold’ from 27 brokers, based on MarketBeat data.
The analysts also gave the stock an average 12-month share price target of US$125.40 per share, with a high estimate of US$160 and low estimate of US$96. This represents an upside of roughly 7.5% from the last traded price.
From a technical perspective IG market analyst Kyle Rodda noted that while Disney’s share price remains in an uptrend, upside momentum has recently waned.
He wrote that Disney’s share price recently dropped below its 20, 50 and 200-day exponential moving averages (EMA), with its relative strength index also trending lower below 50.
Heading into Disney’s quarterly results, Rodda said the market will be watching whether this trendline remains well respected.
A disappointing set of results from Disney poses the risk of a break below this trendline, opening potential downside technical support at US$106 and US$97 per share, he cautioned.
‘Conversely, if Disney’s results happen to surprise to the upside, a break above the share’s 200-day EMA will be closely watched, with a such a shift in momentum opening up a rally towards resistance around US$122 and then US$131 per share,’ Rodda concluded.
Meanwhile, analysts from Cowen last month downgraded their rating on Disney from ‘outperform’ to ‘market perform’ and price target from US$101 to US$97, citing ‘a prolonged impact’ from Covid-19 on its parks and film businesses.
Disney’s earnings missed estimates in three of last four quarters
Analysts polled by FactSet have given a consensus earnings per share (EPS) estimate of minus-US$0.61 per share alongside expected revenues of between US$11.1 billion and US$13.7 billion for the movie studio’s third quarter.
Although it did not provide specific forecast on Q3’s performance, Disney’s CEO Bob Chapek stated in its Q2 earnings release: ‘While the Covid-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position.’
The company also said that the impact of Covid-19 measure has impacted its Parks, Experiences and Products segment most significantly, as it was forced to close theme parks and retail stores, suspend cruise ship sailings and disrupt supply chain.
In light of the above, JP Morgan analysts said in a 23 July 2020 note that the performance of Disney + and the Parks, Experiences and Products segment will remain the key focus during the Q3 earnings call.
For existing shareholders, it is probably also worth noting that the company missed both EPS and sales projections in three of the last four reporting quarters.
Disney’s EPS for the last quarter (Q1 2020) fell below analyst predictions by 34.32%. Reported sales were also just under expectations by US$0.1 billion.
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