Disney (NYSE:DIS) disappointed Wall Street last week after posting third-quarter earnings of $1.87 per share, 8c shy of the consensus and the company’s first earnings miss since last fall. Disney’s sales also came in below the consensus outlook; the company reported revenue of $15.23 billion versus the consensus outlook of $15.34 billion. And yet, DIS stock didn’t suffer dramatic damage as a result of the miss.
Disney’s shares have been more or less moving sideways since late 2015 and are sitting a few dollars shy of their five-year high. Is DIS stock finally ready to break out of its multi-year sideways pattern and hit new highs? I think so. Multi-year consolidation is a promising foundation for a breakout to new highs, especially since Wall Street has been recalibrating its expectations.
Estimates for Disney’s current quarter, current year, next quarter, and next year have all declined in the last 90 days.Sometimes, when estimates fall for a company. it’s a sign of demise or struggle. But Disney is the biggest fish in the media world, so I’m optimistic about its ability to meet these lowered bars. I think it will just take one solid earnings beat to push DIS stock to a new high. And I think the recent 21st Century Fox acquisition could be the fuel which produces that result.
While Disney’s key numbers disappointed Wall Street last week, its earnings haven’t been completely disappointing; for the first nine months of fiscal 2018, Disney’s earnings expanded by a substantial 21% despite revenue growth of 7%. Additionally, the conglomerate’s free cash flow jumped by 19%, while its net income expanded by 42%; those are all impressive numbers, considering that Disney is an established, entrenched media giant.
Studio entertainment posted the greatest increase in sales in the quarter among all of Disney’s units, but it also make up the second-smallest slice of Disney’s revenue pie. Still, while Media Networks suffered a slight slide in earnings due to higher costs, a few blockbuster hits stood out in the earnings report. Incredibles 2 grossed $1 billion globally at the box office, while Marvel’s Avengers: Infinity War” doubled that total.
Zooming out, Disney’s earnings are expected to expand by 11% per year going forward despite relatively shrug-worthy sales growth. But once again, I think the 21st Century Fox acquisition will add some fuel to the top line and that management is experienced enough to keep churning more profit out of its wide-ranging empire.
I like Disney’s dominance and have for some time. Thus, I didn’t see the most recent earnings report as any reason to change that thesis. Instead, more important to me is the chart of DIS stock at this stage in the game. And the fact that shares have moved sideways for so long suggests we’re about ready for DIS stock to bump up to a new high, returning to the impressive streak it posted in the years before this sideways run.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.