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Disney Stock: What Wall Street Says Ahead Of Earnings

As Disney’s earnings day approaches, MavenFlix discusses Wall Street’s expectations for Disney and its stock.

Disney  (DIS) - Get Walt Disney Company Report is scheduled to release fiscal fourth quarter results on November 10. Following the company CEO’s cautious projections on post-pandemic streaming growth, skepticism has set in on the appreciation potential of Disney stock in the near term.

Does Wall Street share the same concerns, or might they be more optimistic about Disney’s earnings season? Today, we look at the expectations for fiscal Q4 and assess the position of sell-side analysts at a few leading investment banks.

Figure 1:  The Alameda Avenue entrance to the Walt Disney Studios in Burbank, California.

Figure 1:  The Alameda Avenue entrance to the Walt Disney Studios in Burbank, California.

(Read more from MavenFlix: Netflix Stock: 3 Metrics To Watch In November)

Expectations for fiscal Q4

For the last fiscal quarter of the year, analysts project revenue of $18.8 billion, a respectable increase of 28% over the same period last year. Despite healthy top-line growth estimates, shares still trade below late 2020 levels, which could signal a possible opportunity to buy the stock on weakness.

Figure 2: DIS quarterly revenues and estimates.

Figure 2: DIS quarterly revenues and estimates.

On earnings per share, the market sees a sequential decline: $0.51 expected vs. $0.80 last quarter, likely a result of COVID-related disruptions. On the other hand, projected EPS for the first period of 2022 should be the highest in the last three years, at $1.09.

Figure 3: DIS earnings per share quarterly.

Figure 3: DIS earnings per share quarterly.

Subscriber expectations

As discussed in “Disney Stock: Wall Street Is Cautious, Should Investors Worry?”, Disney CEO Bob Chapek has warned of lower growth in streaming subscribers this quarter, as the stay-at-home tailwinds dissipate. Reported numbers compared to expectations will likely be a key driver of post-earnings stock price movements.

In reaction to “soft guidance”, analysts have already reduced their projections for new subscriber net additions. JP Morgan analyst Alexia Quadrani dropped her Disney+ estimate for 2022 to 164 million from 185 million new users, and to 210 million from 230 million in 2023.

Price targets

According to TipRanks, 11 of the 15 analysts that cover the stock recommend a buy. The others advocate for a hold. None in the coverage universe suggest selling the shares, in a display of optimism towards the potential gains in Disney stock.

In addition, the average price target on DIS is $212, suggesting 25% upside potential. The highest target is $255 and the lowest is above current market price, at $175. Having had the opportunity to de-risk expectations for stock price performance ahead of earnings but choosing not to do it is, in our view, another vote of confidence from analysts in Disney’s upcoming quarterly report.

(Read more from MavenFlix: Disney Stock: Why Buy At The Start Of November)

Our take: cheap Blue Chip

We find ourselves increasingly optimistic about an investment in DIS. Subdued expectations for the immediate term may have put a damper on share price, but the longer-term view on the business fundamentals seems overwhelmingly positive. With the stock trading below its end-of-2020 price, investors who jump in now may have some margin of safety.

In our opinion, Disney is a great company, and we subscribe to the idea that P&L results will gradually improve with the unwind of the pandemic. The entertainment giant should benefit from a return to movie theaters and parks, and segment revenues should converge towards 2018/2019 levels.

The icing on the cake is the streaming business. Disney+ could struggle in the moments that follow the end of the COVID-19 crisis. However, over the long run, we see the platform boosting the company's revenues, as Disney rides the positive secular trends in streaming.

Twitter speaks

We recently posed a question on Twitter: which streaming and/or entertainment stock would you rather buy now and hold through the end of November? Check out the poll below.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting MavenFlix)