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Disney's Q1: A Box Office Hit Or A Damp Squib?

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Disney's Q1: A Box Office Hit Or A Damp Squib?
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Walt Disney Co (NYSE: DIS) is scheduled to release its first-quarter results of fiscal 2017 on Tuesday after the market close. Can the media and entertainment conglomerate rebound in the quarter following the earnings miss in the fourth quarter? Has the struggling ESPN reached an inflection point? Can Disney's box office success in 2016 help it to cushion the weakness in the other segments?

At least that was what CEO Robert Iger revealed on the fourth-quarter earnings call, even as analysts remain divided over the company's prospects. Iger said earnings would increase in 2017 and 2018. The CEO also touted the company's upcoming film state and offered a bullish perspective on the ailing ESPN.

Q1 Expectations

Analysts, on average, expect the company to report first quarter earnings of $1.50 per share on revenues of $15.26 billion. This compares to $1.63 per share in earnings and $15.24 billion in sales reported a year earlier.

The earnings per share estimate has moved around a bit over the past 90 days, as it was scaled back from $1.61 90 days ago to the current $1.50.

The company had a roller-coaster ride last fiscal year, reporting earnings misses in two quarters and above-consensus earnings per share in the remaining two quarters.

The earnings miss reported for the fourth quarter ended October 1, 2016, was mainly due to weak showing by its ESPN Network, with higher programming costs, falling advertising revenues and eroding subscriber base all weighing down. Box office sales were also lower.

The company's first quarter capped off a record year for its studio entertainment business, with the company's Pixar, Disney Animation, Disney Pictures and Marvell all chipping in with blockbuster hits. According to estimates by Box Office Mojo, the company clocked in revenues of $3 billion, domestically, in 2016.

How Disney's Business Groups Fared In Q4

The company operates as four business units, namely: media networks; parks and resorts; studio entertainment; and consumer products and interactive media — accounting for 43 percent, 31 percent, 17 percent and 9 percent of the total revenues, respectively, in 2016.

Except for the parks and resorts unit, the rest reported revenue declines in the fourth quarter of 2016. Segment operating income was lower for all the business units, with studio entertainment business taking the worst hit.

Sell-Side Sentiment Diverges

  • BMO Capital Markets: Underperform
  • BMO recently downgraded shares of Disney to Underperform from Market Perform and lowered its price target to $88 from $99. The actions were premised on valuations, as the firm cited overenthusiastic buyers bidding up the stock despite the possibility of declines at the studio entertainment business, given the tough compares with 2016.

  • Goldman Sachs: Buy
  • Goldman raised Disney to a Buy from Neutral and upped its price target to $134 from $109.

  • Pivotal Research Group: Sell
  • Pivotal downgraded shares of Disney to Sell from Hold and lowered its price target to $86 from $102, citing the ongoing erosion of ESPN's subscriber base and mixed reports on Shanghai Disneyland from Asian press.

  • RBC Capital Markets: Outperform
  • RBC raised its rating to Outperform from Sector Perform, with the price target lifted to $130 from $101.

  • Evercore ISI: Buy
  • Evercore upgraded shares of Disney from Hold to Buy, with a price target of $120, up from a previous $103.

  • Morgan Stanley: Overweight
  • Morgan Stanley upgraded Disney to Overweight from Equal Weight.

    Stock Performance

    Disney shares lost 0.8 percent in 2016 despite the broader market rally. However, in the year-to-date period, the stock is up 5.8 percent.

    Disney shares snapped a long-term uptrend in mid-2015 and formed a double top subsequently. After the stock pulled back to an intermediate-term support in early 2016, it has largely been moving sideways in a range. Catching up with the Trump rally in late 2016, the stock has been trending higher since then.

    The $114–$119 area could serve as resistance level for the stock and the $90 level could offer support.

    The average analyst price target for Disney's shares is $114.57, suggesting roughly 4 percent upside from the current levels.

    Latest Ratings for DIS

    DateFirmActionFromTo
    May 2018B. Riley FBRMaintainsNeutralNeutral
    Apr 2018BMO CapitalUpgradesUnderperformMarket Perform
    Apr 2018Pivotal ResearchUpgradesSellHold

    View More Analyst Ratings for DIS
    View the Latest Analyst Ratings

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