Walt Disney Co (NYSE:DIS) earnings are on the horizon once again, with second-quarter results scheduled for release after the close on Tuesday. While Disney was once defined by cute talking critters and fairy-tale princesses, Walt’s old-school vision might as well have existed a long time ago, in a galaxy far, far away.
In the past several years, the roof of the Mouse’s House has grown broad and now encompases ABC Television Group, ESPN Inc., Marvel Entertainment, Lucasarts and the Star Wars franchise.
While the latter two acquisitions drew initial ire from fans, Marvel has gone from near bankruptcy to one of the most profitable franchises in the movie business, with a string of blockbusters including The Avengers, Captain America, and Guardians of the Galaxy. Given the recent fan hype surrounding the Star Wars sequels (Episode VII: The Force Awakens) and spinoffs (Rogue One), it would appear that the company has yet another cash cow on its hands.
While hype is all well and good for speculation, DIS stockholders are more interested in the company’s bottom line. Currently, Wall Street is expecting Disney earnings of $1.10 per share, down a penny from year-ago results. Revenue is seen rising 5.1% to $12.2 billion on the quarter.
While Disney’s TV and cable ventures could see leading edge impact from the growing cord-cutting movement, the entertainment giant should more than make up for this impact via gains in its Marvel and Star Wars franchises. This is especially true when it comes to third-quarter and full-year guidance.
Analysts are certainly positive on Disney’s longer-term outlook. According to Thomson/First Call, the brokerage community has doled out 18 “buy” ratings on DIS stock, compared to 13 “holds” and no “sell” ratings. Despite this enthusiasm, there is still room for improvement, as the 12-month consensus price target of $110 offers a miniscule premium of just 1.2% to DIS’s Thursday close.
Turning to the options pits, we find that calls have become quite popular on DIS stock heading into the company’s quarterly report. Currently, the weekly May 8 series of options sports a put/call open interest ratio of 0.61, with calls clearly the investment vehicle of choice. Bullish sentiment increases sharply when we zoom out for monthly May open interest, as DIS’s put/call open interest ratio plunges to 0.33, with calls tripling puts among options set to expire within the next month.
Click to Enlarge Overall, weekly May 8 series implieds are pricing in a potential post-earnings move of about 4.3%. This places the upper bound at $114.76, while the lower bound lies at $105.24. DIS stock is currently trading in all-time high territory, but a breakout above $110 or $115 could bring more technical buyers to the table. Meanwhile, a post-earnings drop would leave the stock well above key support levels, offering a potential buying opportunity for long-term investors.
2 Trades for DIS Stock
Call Spread: DIS has been on a tear lately, and the stock has shown no signs of slowing down. With lingering doubt among analysts, there is certainly more room on the bullish bandwagon. As such, traders looking to bet on a post-earnings DIS stock rally might want to consider a May $110/$115 bull call spread.
At last check, this spread was offered at $2.19, or $219 per pair of contracts. Breakeven lies at $112.19, while a maximum profit of $2.81, or $281 per pair of contracts, is possible if DIS closes at or above $115 when May options expire.
Put Sell: On the other hand, if you are worried that DIS has run too far too fast, then a weekly May 8 series $100 put sell may be more in line with your expectations. At last check, this put was bid at 18 cents, or $18 per contract. If DIS closes at or above $100 by the close next Friday, traders entering this position will retain the premium received for opening the position. However, if DIS trades below $100 ahead of expiration, then traders may be assigned 100 shares at a price of $100 per share, for every contract sold.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
