Disney Stock Hoping For Another Post-Earnings Pop

Picture of Disney Stock Hoping For Another Post-Earnings Pop

Disney Stock Hoping For Another Post-Earnings Pop

Explore how Disney's upcoming earnings could influence its stock value. Will history repeat with another surge?

Walt Disney Co (NYSE:DIS) is set to report its quarterly earnings before the market opens on Tuesday, May 7. The company’s stock has closed higher the session after earnings in its last three quarters, including an 11.5% pop in February. Options traders are betting bullishly ahead of the event, with the options market pricing in a post-earnings move of 7.5%. DIS shares are currently trading at $113.79, up 1% on the day and 26% year-to-date.

Disney's Market Positioning and Brand Strength

Disney’s market share in the tourism industry stands at 94.7%, compared to peers like Six Flags Entertainment Co. (NYSE: SIX) at 1.5% and SeaWorld Entertainment Inc. (NYSE: SEAS) at 1.8%. The company has also made significant investments in new growth areas, such as the broadcasting and streaming platform Disney+, which now holds a 6% market share in the streaming market. Despite a disappointing performance in the past few years, accompanied by contracting margins across the board, Disney’s market positioning is still intact.

The company’s nearly $90 billion in revenue speaks for itself; the $206 billion behemoth brand poses as an irreplaceable competitor in its main businesses, and recent investments could be about to pay off. Disney took advantage of the low-interest rates during the pandemic, as management invested heavily in what are now Disney+ and Hulu acquisitions.

Potential for Profitability and Growth

Before the pandemic, particularly from 2015 to 2019, Disney’s financials showed a net income margin of 16% to 22%. After the pandemic, as parks were closed and streaming investments took a chunk out of the company’s cash flows, Disney’s net income margin fell to 3.7%. The company operates at 80% lower margins than before the pandemic, a warning Disney’s fundamentals are steeply declining.

Wall Street analysts project Disney’s earnings per share (EPS) to rise by as much as 19.5% in the next 12 months. Analysts at Wells Fargo & Co. (NYSE: WFC) see a price target of up to $141 a share, while J.P. Morgan Chase & Co. (NYSE: JPM) considers a similar $140 valuation. Disney stock would need to rally by as much as 25% from today’s price to prove these targets right.

With $56 billion in institutional inflows, investors can see how others on Wall Street spotted this potential mispricing. A 2.0x multiple would throw the stock into a decade-low valuation, excluding COVID-19 lows. As the stock has risen to 91% of its 52-week high prices, investors could assume that momentum favors Disney due to its generationally low valuation.

Eyes on Upcoming Earnings Report

As the company keeps growing its revenues by mid-single digits and the net profit margins increase as the heavy streaming investments start to pay off, Disney’s book value could rise back to its 3.5x average. Once paying up to 2% in dividends, Disney is slowly returning with a 0.3% yield today. Investors will be closely watching the company’s upcoming earnings report for signs of continued growth and profitability.