On Thursday after the close, Disney (NYSE:DIS) delivered its fourth-quarter earnings report. The results sent a jolt through Disney stock, which had been consolidating in a sideways-to-lower manner over the past few months.
Is that jolt — a near-6% gain in after-hours trading — enough to wake this sleeping giant and send the stock back to new highs by year end?
It’s certainly a good start so far, and may be just what the doctor ordered for getting DIS stock back on track.
Disney’s Earnings
Earnings of $1.07 per share topped analysts’ expectations by a dime per share. Revenue of $19.1 billion surged 33.5% year-over-year and topped estimates by $80 million. Based solely on the headline numbers, it was a solid quarter for the House of Mouse.
The company reported strength across the board, with parks and media broadcasts both doing well. The acquisition of Fox helped fuel entertainment gains, as Disney gears up to launch its streaming service next week. For the year, its studio unit was robust, as the company churned out blockbuster after blockbuster.
Those hits are both good and bad for Disney. The obvious plus is revenue and profit growth, particularly as it underwent its massive ~$71 billion Fox deal and builds out its streaming platform. Investors not only needed something positive to hold onto in 2019, but it helped offset some of the financial tolls from these other long-term strategies.
The bad news? Well, it makes for a tough year of comps in fiscal 2020. Investors and management are hoping two blockbusters will help soften the blow, though. Frozen 2 launches later this month, while another Star Wars installment hits theaters in December.
Trading Disney Stock
Disney stock was trading around $140 in after-hours trading. Before the report, the DIS stock price was glued to the 50-day moving average, while sitting almost perfectly between the 100-day and 200-day moving averages.
More than that, the 78.6% retracement is trading just above the 100-day moving average near $137, while the 61.8% retracement is within pennies of the 200-day moving average.
It made this a very critical range for DIS stock. Now gapping over the top of this range on its post-earnings reaction, it will be critical to see how shares end the week. If the stock opens above $136, but fails to hold those gains into the close, it leaves the 200-day on the table.
Ideally, DIS stock gaps up over this level and holds it as support. Over $136 puts the $140 to $142 area on the table. Beyond that, the all-time high up near $147 is possible.
Bottom Line on DIS Stock
There is an enormous shift happening in the digital entertainment space right now. Netflix (NASDAQ:NFLX) was ahead of the curve and Roku (NASDAQ:ROKU) has found itself in a dominant position within streaming. But now the floodgates are opening, as Disney enters alongside Apple (NASDAQ:AAPL). These are two juggernauts in terms of device count/users and entertainment quality.
A tie-up back in the Steve Jobs era would have made the combined entity an untouchable juggernaut in entertainment.
In any event, Disney is still marching in that direction. Management has almost perfectly toed the line here. They have properly managed their film releases to maximize studio segment growth, while growing parks and media as it builds out its next-generation streaming business.
While this segment will cost Disney money in the first few years of operation, it’s almost impossible to argue with its line-up. Not only did the company have a rich content library on its own, but adding Fox gives it even more content ammo.
Looking forward to the fiscal year that Disney just began, analysts expect 18% revenue growth. However, they expect earnings to decline by about 2.8%. It’s somewhat of a pivot year, but an exciting one at that. For 2021, estimates call for another 6% bump in revenue and more than 14% earnings growth.
In short? Long-term shareholders in Disney stock can rest easy.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL, DIS and ROKU.
