Disney (DIS - Free Report) shares have climbed 15% over the last six months as the media conglomerate rides a wave of positive momentum from its 21st Century Fox (FOXA - Free Report) deal and its streaming push to challenge Netflix (NFLX - Free Report) and others. Now, with Disney set to report its fiscal fourth-quarter earnings results on November 8, it’s time to see if investors should buy DIS stock.
Disney’s $71 billion deal to acquire Fox’s film and TV studios, among other assets has been approved. Disney will have to divest nearly two dozen regional sports channels as part of the deal’s approval based on Disney’s outsized influence over sports through ESPN. Comcast (CMCSA - Free Report) , which dropped out of the race for the same Fox units, does appear to have landed Sky PLC—a move DIS investors responded positively to.
The company’s acquisition was made to help Disney offer a more robust direct-to-consumer TV service as well as more blockbuster titles. This is the latest and the largest of a string of media properties Disney has purchased, which also includes Star Wars production company Lucasfilm and Marvel Entertainment.
Disney plans to remain a box office juggernaut and roll out more theme park-related offerings featuring these properties. Maybe more importantly, however, is Disney’s streaming service that it expects to roll out in late 2019. “We're also moving forward with brand new Marvel content and, as I just noted, the Fox acquisition brings even more opportunity to create original programming for this platform,” Disney’s CEO Bob Iger said on the company’s Q3 conference call.
“We feel that it does not have to have anything close to the volume of what Netflix has because of the value of the brands and the specific value of the programs that will be included on it.”
Disney will soon offer at least two streaming platforms: ESPN+ and what Iger called “Disney Play,” and possibly Hulu, depending on how things play out with Comcast. It is worth noting that the slimmed down streaming version of its sports media power, ESPN+ surpassed 1 million paid subscribers in just five months.
Looking ahead, Disney seems poised to offer consumers both live streaming sports and big-name TV and movie content that should help it thrive in the new age of entertainment. Disney could easily stand out in a streaming world currently dominated by Netflix and Amazon (AMZN - Free Report) , as well as against AT&T (T - Free Report) and Apple (AAPL - Free Report) , which are both set to introduce their own streaming services.
As we mentioned at the top, shares of Disney have performed well over the past six months, crushing the S&P 500’s roughly 3% jump. Disney stock has also outpaced the S&P over the last five years, despite some significant turbulence.
Disney stock closed trading at $114.83 per share Wednesday, down 4% from its 52-week high of $119.69 per share.
Moving on, Disney stock is currently trading at 15.8X forward 12-month Zacks Consensus EPS estimates, which marks a discount compared to its industry’s 18.2X and the S&P’s 16.1X average. Plus, Disney has traded as high as 17.8X over the last year. DIS does currently sit above its 52-week low of 13.4X and its one-year median of 15.2X.
But we can see that Disney stock has traded as high as 22X over the last five years, with a five-year median of 17.4X. Therefore, we can say with some confidence that Disney stock appears somewhat attractive at its current level.
Our current Zacks Consensus Estimate is calling for Disney’s quarterly revenues to jump 8.1% to hit $13.81 billion. More specifically, the firm’s Media Networks revenues, which includes cable and broadcast, is projected to climb 4% from $5.465 billion to $5.688 billion, based on our current NFM estimates.
Meanwhile, Parks and Resorts revenues are expected to jump roughly 11% from $4.667 billion to $5.204 billion. Lastly, Disney’s Studio Entertainment revenues are projected to hit $1.826 billion, which would mark a roughly 27.5% surge from the year-ago period’s $1.432 billion.
At the other end of the income statement, Disney’s adjusted quarterly earnings are projected to jump 22.4% to reach $1.31 per share. Disney has also received two upward earnings estimate revisions for the fourth quarter over the last 60 days, with 100% agreement to the upside. With that said, DIS has missed our quarterly earnings estimates in four out of the last 10 periods.
Disney is currently a Zacks Rank #3 (Hold) that sports a “B” grade for growth in our Style Scores system. Therefore, it might be worth just keeping an eye on DIS at the moment. But make sure to pay close attention to any ESPN and Media Networks news, as well as streaming updates because they could foreshow how DIS trades in the near-term.
Disney is projected to report its fiscal 2018 and Q4 financial results after the closing bell on Thursday, November 8.
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