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Will Disney (DIS) Fail to Cheer Investors in Q3 Earnings?

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Disney (DIS - Free Report) is slated to report third-quarter fiscal 2018 results on Aug 7.

In the last reported quarter, the company delivered a positive earnings surprise of 9.52%. Revenues of $14.55 billion outpaced the Zacks Consensus Estimate of $14.23 billion and improved 9.1% year over year.

The Zacks Consensus Estimate for third-quarter earnings has remained steady at $1.97 over the last seven days, reflecting year-over-year growth of 24.7%. The consensus mark for revenues currently is pegged at $15.49 billion, reflecting year-over-year growth of 8.8%.

Let’s see how things are shaping up for this announcement.

Avengers: Infinity War to Boost Studio’s Top Line

The stupendous success of Avengers: Infinity War is likely to drive Studio Entertainment’s (16.9% of second-quarter revenues) top-line growth in the third quarter. The movie crossed $2 billion in gross collections globally in its 48th day of release (debut on Apr 27).

The Walt Disney Company Price and EPS Surprise

 

The Walt Disney Company Price and EPS Surprise | The Walt Disney Company Quote

We believe that success of Black Panther, Avengers: Infinity War and Incredibles 2 makes the studio business a key catalyst for Disney. Per data from Box Office Mojo, these three films alone accounted for $1.8 billion domestically as of the end of June.

Notably, Disney dominated June with five films grossing more than $556 million collectively. The company has collected $2.2 billion in domestic ticket sales at the end of the month.

Parks & Resorts Continues to Attract Visitors

The media giant’s continued investment in Parks & Resorts (33.5% of second-quarter revenues) is reaping benefits. The company’s strategy of better-load balancing of attendance throughout the year is driving the number of visitors.

We expect higher guest attendance at Walt Disney World Resort along with increasing guest spending to boost top-line growth.

During second-quarter conference call, management stated that domestic resort reservations were down 4% year over year, reflecting reduced room inventory due to conversions and ongoing room refurbishments.

ESPN Woes to Continue

Falling subscriber base and higher programming costs at ESPN are major concerns. Fresh NBA agreement and increase in contractual rate for NFL programming have been driving the overall programming cost for ESPN.

In the last reported quarter, lower impressions due to fewer units delivered and a decrease in average viewership hurt ESPN’s advertising revenue growth.

Moreover, the Media Networks (42.2% of revenues) is expected to get negatively impacted by additional operating expenses related to BamTech as well as higher programming expenses related to the launch of Hulu digital MVPD business.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Disney has a Zacks Rank #4 and an Earnings ESP of 0.00%, which indicates an unlikely positive surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are three stocks you may want to consider as our model shows that these have the right combination of elements to deliver an earnings beat in the to-be-reported quarter.

Vishay Intertechnology (VSH - Free Report) has an Earnings ESP of +2.41% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zillow Group (ZG - Free Report) has an Earnings ESP of +15.38% and a Zacks Rank #2.

CyberArk (CYBR - Free Report) has an Earnings ESP of +3.38% and a Zacks Rank #3.

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