Disney DIS shares have soared 80% in the past year to easily outpace the S&P 500’s 50% climb, despite movie theater and theme park closures, as Wall Street looked to streaming TV growth. The entertainment conglomerate just recently reopened its California parks and more people are returning to movie theaters.
So is it time to buy Disney stock ahead of its second quarter fiscal 2021 financial release on Thursday, May 13?
Streaming Growth & More
The coronavirus pandemic forced Disney to close its massive theme park resorts around the world last year. Movie theaters were also closed for an extended period of time, forcing Disney to push back theatrical release dates. Amid these tough operating conditions, Disney’s revenue dropped 42% in the third quarter of FY20.
Luckily, Disney had launched its streaming TV service in November of 2019, as part of a massive push into the future of entrainment. The company also spent roughly $71 billion to buy key Fox assets. The moves have helped Disney successfully burst onto the streaming scene alongside Netflix NFLX, Apple AAPL, Amazon AMZN, and others.
With this in mind, Disney revenue fell 22% the last two quarters. Yet its direct-to-consumer sales surged 73% in Q1 FY21.
Disney+ in March topped 100 million global subscribers, after roughly 16 months, to crush its guidance. The company’s initial goal was for 60 to 90 million subscribers by 2024. DIS now expects to reach between 230 to 260 million over this stretch—Netflix closed Q1 with 208 million.
Disney’s DTC offerings include Disney+, Hulu, and ESPN+, which are available in a bundle as well. The family-friendly titles, as well as big blockbuster franchises such as Marvel and Star Wars have clearly attracted customers. The company has also poured money into original shows and movies and it raised in March the price for the basic Disney+ to $7.99 a month, from $6.99.
Meanwhile, DIS reopened its California parks on April 30 at limited capacity, which is welcome news to investors after the larger Florida parks reopened last summer. On top of that, movie theaters are now open throughout much of the U.S. and some recent box office numbers are encouraging.
Let’s remember that prior to the pandemic, Disney’s Star Wars and Marvel movies dominated theaters. And this trend could easily continue, with the company recently announcing the next phase of Marvel movies.
Zacks estimates call for DIS adjusted Q2 FY21 earnings to slip 53% to $0.28 a share, on 10.6% lower sales. Peeking ahead, however, the company is projected to return to growth in a big way as streaming grows and people storm back into theaters and parks ready to spend.
Disney’s full-year fiscal 2021 revenue is set to pop 7% to climb right back to pre-pandemic levels at $69.6 billion. The company’s FY22 sales are then projected to soar 25% higher to reach $87 billion, with its growth rate easily topping FY19’s 17% expansion. At the bottom end of the income statement, Disney’s adjusted earnings are projected to climb 1.5% and 143%, respectively over this stretch.
Disney’s longer-term consensus earnings estimates have moved higher over the past 30 days, and the company has beaten our adjusted EPS estimates by an average of 120% in the trailing three periods.
After its strong run off the market’s coronavirus lows, DIS has cooled down a bit, up just 2% in 2021 vs. the S&P 500’s 12% climb. The stock sat 9% below its March records at $183 a share, as of late afternoon trading Wednesday. The pullback has pushed Disney below neutral RSI level (50) at 43, which could give the stock room to run if Disney impresses on May 13.
Investors should know that Disney is trading at a 35% discount to its own year-long highs at 48.6X forward 12-month earnings. That is still a massive premium compared to its industry’s 25X and the S&P 500’s 22X. But Wall Street has clearly seen reason to pay up for Disney given its Fox deals and impressive streaming growth.
Disney lands a Zacks Rank #3 (Hold) at the moment, and investors might want to consider DIS as both a near-term reopening play and a bet on its dominance in entertainment for years, if not decades to come.
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