Hakuna Matata: What a Wonderful Earnings Report

Walt Disney Co. DIS reported fourth quarter earnings last night that were better than expected, and shares are soaring this morning, up more than 7%. The Burbank, CA.-based company reported earnings of 59 cents per share on $10.42 billion in revenues. Wall Street was looking for earnings of 54 cents per share on $10.36 billion in revenues. “Our third quarter demonstrates the continued strength of our Media Networks, including ESPN, Parks and Resorts and Consumer Products,” said Robert A. Iger, President and CEO of The Walt Disney Company. “In these turbulent times, our company and its array of strong brands are well-positioned to deliver long-term shareholder value.” Wall Street was especially impressed with the report, as Citigroup raised the price target to $59. J.P. Morgan was also positive on the report, as was Deutsche Bank and a host of other research firms. J.P. Morgan in a note to clients wrote, “Disney reported better than expected FQ4 results with EPS of $0.58 vs. our $0.54 estimate that was in line with consensus. Upside came primarily from stronger revenues and profitability at both the Parks & Resorts and Broadcasting”. Deutsche Bank noted, "The NBA game cancellations will have little impact, in our view. ABC Family ad sales is >10%. Park trends appear stable with flat rooms on the books (better than last two qtrs) and pricing up 3% (lower given holiday qtr), while mgmt indicated Park margins would expand in FY12." Bob Iger and the rest of his team have done a tremendous job being able to maximize revenues, and mitigate the loss of the NBA season so far, by promoting ESPN even more, and stronger numbers at the theme parks. The NFL is booming, with ratings for "Monday Night Football" soaring. The acquisition of Marvel Entertainment is really expected to pick in the coming years, as "The Avengers" is expected to be a huge summer blockbuster. It has a host of other properties, including "Iron Man 3", "Captain America", and several different others. Disney has always been afforded an earnings multiple premium to the other content companies, simply because it has consistently been able to deliver strong revenue growth and it has some of the most well known properties across the globe. After this earnings report, shareholders are not singing "It's a Small World After All," but rather "Hakuna Matata." ACTION ITEMS:

Bullish:
Traders who believe that Disney will continue to deliver might want to consider the following trades:

• Disney is trading at less than its historical multiple of a premium to the S&P 500. It could see some multiple expansion in the coming weeks.

Bearish:
Traders who believe that the global economy will slow down sharply because of worries in Europe may consider alternate positions:

• Disney still generates a lot of its revenues from overseas, and any worries about a slowdown in Europe could make the name a potential short.
  
  

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