Walt Disney Co (NYSE:DIS) will step into the earnings limelight after the close tomorrow to offer up a report on the state of affairs in the Mouse’s house. Disney has seen a renaissance in its film and parks/resorts businesses, with blockbuster results from the Star Wars franchise helping to drive revenue for both units. But declining ESPN subscribers remains the loadstone for Disney stock, and the company needs a solution soon.
By the numbers, Wall Street is looking for a fourth-quarter profit of $1.16 per share from Disney, with revenue expected to come in at $13.52 billion. According to Earnings Whispers, expectations may be a bit higher, with the whisper number resting at $1.18 per share.
But while analysts are showing a bit of optimism toward Disney’s quarterly report, the overall sentiment backdrop is considerably more bearish. In fact, Zacks data indicates that 14 of the 23 analysts following Disney stock rate it a “hold” or worse. Furthermore, the 12-month consensus price target of $106.71 represents a modest premium of just 13% to yesterday’s close.
The sentiment is much the same in Disney stock options pits. For instance, the November put/call open interest ratio has risen to a near-term high of 0.88 for DIS. This reading holds firm at 0.88 even when we zero in on the weekly November 11 series, with puts gaining favor on Disney stock quickly heading into tomorrow’s report.
Click to Enlarge Overall, weekly Nov. 11 series implieds are pricing in a potential post earnings move of about 3.7% for DIS. This places the upper bound near $97.49, while the lower bound lies near $90.51.
A rally to $97 would be impressive, as it would push Disney stock through resistance in the $95-$96 region. But such a feat is unlikely unless progress is made on the ESPN front. A DIS drop to $90 appears much more likely given current market conditions, though support should hold here unless ESPN figures are shockingly bad.
2 Trades for Disney Stock
Bear Put Spread: With the path of least resistance likely downward at this point, traders might want to consider a Nov $90/$92.50 bear put spread.
At last check, this spread was offered at 80 cents, or $80 per pair of contracts. Breakeven lies at $91.70, while a maximum profit of $1.70, or $170 per pair of contracts, is possible if Disney stock closes at or below $90 when November options expire.
Call Spread: Better-than-expected numbers from ESPN aren’t out of the question for DIS, and a positive on this front could turn things around for Disney stock. Traders looking to bet against the grain might consider a Nov $93/$95 call spread.
At last check, this spread was offered at 74 cents, or $74 per pair of contracts. Breakeven lies at $93.74, while a maximum profit of $1.26, or $126 per pair of contracts, is possible if Disney stock closes at or above $95 when November options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
