Disney Is Facing a Brutal Reality

Nobody caters to both the couch potato as well as the pursuit of the experiential lifestyle better than The Walt Disney Co. (DIS) .

The worries for quarter after quarter have centered not just around the decline of ESPN, but really the decline of cable television in general. The king of content has long been the model for monetizing the cable bundle as well as the movie going experience, not to mention successfully selling vacations not just domestically, but globally. Then there's character merchandise. Okay, we all know this already, this consumer based company virtually prints money.

The movie studios have become dominant. From "Black Panther" to "Pixar" to "The Avengers" to "Star Wars", I don't think this is a worry. How well Disney manages it's transformation from the small screen, while television is still a profitable business, to a streaming model that still drives enough revenue to keep that business line from showing too much decay, is the trick. How long it takes to show certainty in this area is how long the name could possibly underperform it's potential.

Disney recently launched ESPN+. This new venture will likely garner more attention tonight than it should, but that is where analysts are going to go. They already know most of the other business lines are going to perform well. This is Disney's monster under the bed. I am still a buyer, especially on any kind of earnings related weakness. The industry is widely looking for EPS of $1.70 (whispers are for a few cents higher) tonight on revenue of $14.23 billion. If the firm hits precisely on revenue, this would represent 6.7% year over year growth.

You can see clearly here that with the name headed into earnings, that Disney has colored within the lines, showing great respect for the boundaries of the Pitchfork's upper chamber. Both Relative Strength and Money Flow show improvement, but nothing to write home about. I would point out the suddenly positive looking daily MACD, but treat that subject to the news flow.

What does stand out is the quarterback sneak that the name pulled yesterday to get across the 50 day SMA, and approach the 200 day SMA. A little positive momentum could actually force a "Golden Cross" with a couple of weeks' time. My price target remains 110 for now. I still carry about 25% of my intended long position. I am short 92.50 puts that expire next week, and 87.50 puts that expire in September. I am also short 110 calls that expire in September. Right now, my basis after taking on all of these derivative positions is just above 96. My intention is to get that basis another dollar or so lower than it is.

September 90 puts went out last night at 1.23. Making that sale ahead of these numbers will likely offer more premium then waiting, while also allowing the name time to recover should there be a negative reaction either to the news flow, the data, or Bob Iger's conference call.

(Disney reports earnings after Tuesday's close. Monday night, Reuters reported that Action Alerts PLUS holding Comcast (CMCSA) was prepping an all cash bid for the assets of Fox that would top the $52.4B deal that Disney had in place.)

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