Buy Disney! Dip Following Second-Quarter Earnings Was Unwarranted
Shares of Walt Disney (DIS) - Get Report were down as much as 5% on Wednesday and ended the day off more than 4% following the release of fiscal second-quarter earnings after the market close on Tuesday.
The stock decline gives investors a great buying opportunity, especially for those who want to own the stock until retirement. The drop is completely unwarranted and just another example of the ridiculous behavior being displayed lately by skittish Wall Street traders.
Disney posted quarterly revenue of $12.97 billion and adjusted earnings of $1.36 a share, up 4% from $12.46 and 10.5% from $1.23 a year earlier, respectively. Wall Street was expecting revenue of $13.21 billion and adjusted earnings of $1.40.
This quarter marked the first time in five years that Disney missed expectations.
Both Disney's cable network revenue and consumer product sales fell by 2%, down to $4 billion and $1.2 billion, respectively.
In its earnings release, Disney also said that it will shut down Infinity, a gaming console for which the company will now take a $147 million charge.
Disney has for a long time had merchandising deals with toy and game makers, such as Electronic Arts and Hasbro, and this gaming console should have been left up to the professionals from the get-go. Let's hope that Disney has gotten the idea that it can make games and toys out of its system for good.
But the report didn't contain only bad news.
Despite the slight declines in cable network revenue and the fear that cord-cutting will soon run rampant, Disney's cable profits rose by 12% to $2.02 billion, helped in part by its troubled ESPN division. Furthermore, Disney's studio entertainment division posted revenue of $2.1 billion, an increase of 22% from a year earlier, while theme park revenue also rose by 10% to $624 million.
As for merchandising, Electronic Arts also posted earnings Tuesday that beat projections because of the popularity of its "Star Wars Battlefront" video game, and, of course, Disney owns the "Star Wars" franchise.
As for Hasbro, many analysts think that it will also continue to benefit from its relationship with Disney, especially after Disney's "Zootopia" animated movie crushed the opening weekend box-office sales numbers for "Frozen" in 2013.
The only reason that shares of Disney fell on Wednesday is because Wall Street set expectations higher than they should have, not because Disney is hurting from a business perspective. This is just another example of Wall Street acting impulsively and being short-sighted.
Investors should take advantage of the recent decline and buy as many shares of Disney as they can before the price moves higher again, and plan to hold those shares until they enter retirement.
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This article is commentary by an independent contributor. At the time of publication, the author held stock in Disney.
