Thanks to its iconic brands, Disney (NYSE:DIS) maintains a significant advantage in the entertainment and media-content space. However, most of the trailing five-year period has featured disappointment for DIS stock. Shares have seen plenty of movement, but without any definitive trajectory, they have frustrated more often than they have profited.
In theory, Disney stock really should enjoy a decisive swing higher. For one thing, the media giant’s acquisition of Lucasfilm ensures that they maintain relevancy. Yes, the buyout was a pricey affair, but it gives the company the ability to merchandise the snot out of the Star Wars franchise.
Just as important, DIS beat out rival Comcast (NASDAQ:CMCSA) for Twenty-First Century Fox’s (NASDAQ:FOXA) entertainment assets. Disney’s management team has proven experts in milking content franchises for all they’re worth, plus more. With Fox’s key assets, which include Marvel Comics’ X-Men and Deadpool, Disney levers an ungodly content advantage.
Bolstering the case for DIS stock is that the current cinematic landscape rewards science-fiction and comic-book based blockbusters. According to BoxOfficeMojo.com, the top-three movies of 2018 were Black Panther, Avengers: Infinity War and Incredibles 2. The first two films are based off Marvel Comics’ characters, while the latter is a sci-fi animated flick. Buena Vista, Disney’s movie-making arm, produced all three.
In fact, you must go down to the seventh and eighth-most popular films of 2018 to come up with something not related to comic books or the sci-fi genre. These movies are Dr. Seuss’ The Grinch and Mission: Impossible – Fallout.
Yet Disney stock has worried shareholders with its erratic trading in the past two months. According to some analysts, this is a put-up-or-shut-up moment: DIS must deliver the goods on its Disney+ streaming platform, which would validate the company’s other endeavors.
DIS Stock Faces Nearer-Term Pressure
Of course, Disney+ won’t release until later this year. At that time, the company will remove its core content from Netflix (NASDAQ:NFLX). However, both analysts and stakeholders have expectations to hear a progress report during the upcoming first-quarter 2019 earnings report.
This adds significant pressure to an already tough environment. While Disney has enjoyed multiple success stories, they largely came earlier last year. But over the past three months, the company’s film releases fell flat compared to the prior-year period’s results. Not surprisingly, DIS stock became acutely volatile.
Therefore, stakeholders are looking ahead to Q1 with some trepidation. Analysts peg consensus earnings-per-share at $1.55. This is near the higher end of the estimate spectrum, which ranges from $1.35 to $1.67. In the year-ago quarter, Disney delivered an EPS of $1.89 against a consensus $1.61 target.
On the revenue front, analysts expect the “Magic Kingdom” to rake in $15.4 billion. Estimates range from $14.3 billion to $15.9 billion. In Q1 2018, DIS also rang up $15.4 billion.
It’s not that the company can’t produce a solid showing for Q1. Individually, some revenue segments are set for significant growth, especially its theme parks and resorts division. That’s the one bright area that consistently supports the bullish thesis for Disney stock.
Unfortunately, the American icon is a victim of its own success. Blockbusters such as Star Wars: The Last Jedi, Thor: Ragnarok and Coco ensured that subsequent releases will appear comparatively tame.
Plus, once the Disney-Fox deal officially closes, the acquisition will impose nearer-term costs. Again, management will find itself under pressure. Invariably, they must communicate a confident narrative that the expensive deal benefits the organization. Otherwise, we could see a return to volatility for DIS stock.
The Pieces Are in Place for Disney Stock
Out of all the earnings reports that are releasing this week, Disney potentially is the most dramatic. This is because we’ve already seen how sensitive DIS stock is to bad news. Between Dec. 14 through Christmas Eve, shares dropped more than 10%.
Admittedly, I’m not 100% confident about what’s going to happen in Q1. My gut tells me that the company will barely scrape by against its benchmark metrics. As a result, Disney stock could face some choppy waves.
However, I think most of the important pieces are in place for DIS. The company has already proven its ability to produce massive blockbusters off its extensive content library. While certainly pricey, the Fox buyout represents a net positive for Disney’s long-term media-entertainment strategy. Therefore, I will genuinely be surprised if Disney+ turns out to be a dud.
That said, management must deliver an on-point message, especially if the actual numbers fall short. Otherwise, we’ll incur some pain before witnessing a move higher.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
