Can Disney's Stock Regain the Magic After Earnings?

Disney is a solid turnaround candidate and now is the time to buy.
By Richard Saintvilus ,

Walt Disney (DIS) - Get Report , once the most dominant component of the Dow Jones Industrial Average (DJI) , has been the Dow's most disappointing stock since July, falling as much as 33%. Subscriber losses from its sports network ESPN is much to blame.

At $115.60, share are down 4.6% in the past three months but up close to 23% on the year and 26% over the past year. Despite a decline in analysts' earnings estimates, the Magic Kingdom looks ready to regain that magic ahead of the company's fourth-quarter earnings after the close Thursday.

With much of negative news about ESPN out of the way, ignoring the value in Disney shares would be a mistake. The stock now trades at a price to earnings ratio of 24. That's three points higher than the S&P 500 index, but it's also three points lower than where Disney stock traded in August. For this reason, among others, Disney stock still has its buy rating and average analyst 12-month price target of $120, suggesting some 4% gains from current levels of around $115.

Why the implied confidence? It could be because, despite the ESPN subscriber woes, the Burbank, Calif.-based company still has a strong pipeline of movies about to hit the theaters in months and quarters ahead -- starting with expected blockbuster, Star Wars Episode VII -- The Force Awakens, which is due out at the end of the year.

Disney, which owns popular theme parks, cruise ships and resorts, is much bigger than one sports channel. This is a company that has beaten Wall Street's earnings estimates in 11 straight quarters and has multiple profitable revenue streams. And based on analysts' estimated annual earnings growth rate of 13% for the next five years, it would seem there's tons of reasons to be bullish on Disney beyond this quarter and fiscal year.

Despite how dire Disney's near-term prospects might appear, given the growth struggles of ESPN, the company's earnings are projected to climb almost 20% for the just-ended fiscal year. By contrast, rival Twenty-First Century Fox (FOX) - Get Report is projected to grow earnings just 2% for its fiscal year, ending June 2016.

In short, Disney shares looks well-positioned to regain the magic and investors who are looking for a solid turnaround candidate should buy now, especially when the bar has been lowered.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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