Disney share price holding on to support ahead of Q2 earnings

On the back of ongoing vaccination and improving economic conditions, can Disney’s Q2 results this week outperform market expectations?

When does Disney report earnings?

Walt Disney Co (All Sessions) is set to release its Q2 financial results on 13 May, after the market closes.

Disney earnings – What to expect

Looking at its revenue breakdown, Disney’s businesses have been set on a recovery path after bottoming out in Q3 2020. Profitability for its parks may require a longer timeline to revert to pre-Covid-19 levels, as limited capacity and safety measures may remain in place for the foreseeable future. The upcoming Q2 2021 earnings are expected to remain under pressure from park closings during the measured period.

That said, ongoing vaccination and further reopening will provide catalysts for recovery ahead. Pent-up consumer demand in 2H 2021 may also drive park traffic, potentially mirroring the likes of Shanghai Disneyland which saw record high visitors back in April.

Bloomberg estimates for earnings per share (EPS) suggest that one may look beyond the muted Q2 2021 earnings, with a potentially stronger EPS recovery to be reflected in Q3 2021. One to watch for the forward guidance in the upcoming results.

With the inclusion of Disney+ in Q4 2019, Disney’s growth of steaming subscribers does not seem to be slowing anytime soon, accounting for close to 72% of Netflix’s as of Q4 2020. A hike in price for Disney+ back in March may boost profitability ahead and still remain attractive to subscribers, with pricing still being relatively lower than its other competitors. Disney expects to see between 230 to 260 million subscribers to Disney+ by 2024, more than doubling its current figure.

A gradual return to a normal calendar for college football and other sporting events may also continue to provide tailwind for its ESPN business.

How to trade Disney earnings

Disney’s current forward P/E ratio stands at 44.7, commanding a premium over some of its competitors in the content entertainment space. Investors may have priced in some premium towards the recovery for its parks segment and the strong momentum in its subscriber growth for Disney+. Having outperformed for its earnings expectations over the previous three quarters, investors may be expecting the outperformance trend to continue in its upcoming Q2 earnings.

Company name Forward price/ EPS Forward price/ Revenue
Walt Disney Co 44.7 4.04
ViacomCBS Inc 9.7 0.91
News Corp 41.9 1.64
Netflix Inc 43.1 6.96
Discovery Inc 12.4 1.40
Comcast Corp 17.5 2.23
Average 28.2 2.86

Source: Refinitiv

Currently, the stock has 26 ‘buy’ recommendations, six ‘holds’ and two ‘sells’. The Bloomberg 12-month consensus target price of US$207.57 suggests a potential 12.7% upside from current price.

Technical analysis

Disney’s share price seems to be finding support at the US$182 region and is currently weighed down by its 100-day MA ahead of earnings release next week. Should price retrace, it may potentially find support at the US$165 level, which saw prices being supported on previous two occasions. Key resistance level to watch may be at the psychological US$200 price level.

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