Disney Stock Has a Lot to Prove This Week

The media giant has a big earnings report on Tuesday afternoon.

It’s time to see if this year’s gains for the House of Mouse are legit or if it’s a mousetrap. Walt Disney (DIS 1.46%) reports its fiscal second-quarter results after the market close on Tuesday.

Expectations may not seem lofty, but the shares are already trading 26% higher this year. Disney is trouncing the market after three consecutive years of falling short. It can’t afford to squander its long-absent bullish momentum. The media giant needs a strong performance to keep the upticks coming. Let’s take a closer look at this critical week for Disney shareholders.

Wish Mountain

Disney isn’t likely to match the excitement it generated last time out. Its fiscal first-quarter performance in early February came with a bag of goodies, but it didn’t have the option of coming to the party empty-handed. With a proxy battle ready to go down at its April shareholder meeting, it was Disney’s last chance to impress retail and institutional investors to avert an activist shakeup of its boardroom.

As a refresher, here is just a taste of some of the pixie dust that Disney sprinkled on the market three months ago:

  • Disney boosted its semiannual dividend by 50%.
  • The board authorized $3 billion in repurchases, Disney’s first buyback since 2018.
  • It revised its outlook for annualized cost savings by the end of this fiscal year from $7.5 billion to “exceed” $7.5 billion.
  • A historical laggard in gaming, Disney made a $1.5 billion investment in Fortnite developer Epic Games.
  • Disney+ would be getting Taylor Swift’s popular concert film, outbidding rival streaming services.
  • An already promising slate of theatrical releases this calendar year is getting even better. Disney announced that an animated series based on Moana that it was working on for Disney+ was coming out so well that it would instead be turned into a movie that will hit a multiplex near you in November.

Some of these announcements were logical reveals in its last quarterly earnings call. The Taylor Swift: The Eras Tour release on Disney+ was happening a month later. The Epic Games purchase had just been finalized. However, why would it announce a dividend hike five months before it’s actually going out? The buyback with Disney shares approaching fresh 52-week highs could’ve waited. Disney wanted to sling as many Brave arrows as it could ahead of its annual meeting showdown. Is there anything left in its quiver this time around?

Mickey and Minnie Mouse aboard one of Disney's cruise ships.

Image source: Disney.

The reason for the earnings season

Analysts see $22.14 billion in revenue for the three months ending in March, a mere 1.5% increase over the past year. The lackluster growth makes sense given Disney’s rough year-over-year comparisons at the box office. The release of Avatar: The Way of Water in late December 2022 was still wooing audiences in the fiscal second quarter of last year. Disney’s promising slate of potential box office blockbusters this year doesn’t get rolling until Kingdom of the Planet of the Apes debuts this weekend. Disney World in Florida was also wrapping up its celebration of the resort turning 50 in last year’s fiscal second quarter.

The real story here will be the bottom line. Wall Street pros are holding out for an adjusted profit of $1.10 a share, a figure that has been inching higher in the days leading up to tomorrow’s report. This would translate into an 18% increase. Recent history suggests Disney could do even better. The entertainment stock bellwether isn’t just exceeding bottom-line targets in its three previous outings. The degree of the beat is accelerating.

Quarter EPS Estimate EPS Actual Surprise
Q2 2023 $0.93 $0.93 0%
Q3 2023 $0.95 $1.03 8%
Q4 2023 $0.70 $0.82 17%
Q1 2024 $0.92 $1.14 24%

Data source: Yahoo! Finance. EPS = earnings per share.

As Disney+ grows closer to its goal of turning profitable in the fourth quarter of this fiscal year and Disney makes headway in its other cost controls the story keeps getting better on the bottom line. Disney might not seem cheap at 24 times this fiscal year’s earnings, but if analysts are still aiming low the real multiple will be even more attractive.

The market will forgive a flat top line this quarter. It’s all about the bottom line. A little insight into CEO Bob Iger’s succession strategy and its theme park plans also can’t hurt at this point.

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