Shares of Disney (NYSE:DIS) have garnered investors’ interest as of late. Disney stock has been struggling and that isn’t a result of the market-wide pressure we’re seeing in the stock market.
Interestingly enough, Disney has been just the opposite. Shares hit a new all-time high of $153.41 on Nov. 26, and while it hasn’t been a straight drop down, the stock has struggled to garner any upside momentum since. Over the past few sessions though, with the S&P 500 and Nasdaq under immense pressure, Disney stock has held up for the most part.
In other words, while the market was hitting new high after new high, Disney stock has languished. With the market finally under pressure, Disney shares are finding their footing.
Making it even more interesting is that Disney reports its fiscal first-quarter earnings report on Tuesday after the close.
Trading Disney Stock
Does the recent strength in the stock price make Disney a buy ahead of earnings? Is it an opportunity to sell?
After breaking below both the 100-day and 200-day moving averages, shares have seemingly found their footing in this area even though the stock has yet to reclaim these marks. At current levels, shares are down 12.1% from the all-time high. For intermediate- and long-term investors, this type of decline may be a reasonable discount to initiate or add to their position.
Support is, more or less, coming into play in the $135 to $136 area, the gap-up mark from November. Below $135 and Disney stock may go on to fill the November gap down toward $132.50. Below that and the $127 to $128 area will surely have investors’ attention, particularly if the decline comes after Disney reports earnings.
If the post-earnings reaction is bullish, a few upside levels have our interest. First, Disney stock needs to reclaim and hold the 100-day and 200-day moving averages. The more time the stock spends below this level, the more likely it is to crack lower. Above these marks puts the $142.50 level on watch, which was prior short-term support before the latest decline.
For bulls to really shift momentum back in their favor though, they need Disney stock to reclaim prior short-term resistance and short-term downtrend resistance (blue line). That will put $150-plus back on the table.
Sizing Up Disney
Technicals aside, is Disney stock something that investors should even want to own?
For the upcoming quarter, analysts expect earnings of $1.48 per share on revenue of $20.83 billion. When it comes to the full year, analysts expect Disney to earn $5.44 per share on revenue of $81.34 billion.
If Disney meets these expectations, it will represent more than 16% revenue growth, but a 5.7% decline in earnings. At almost 26 times earnings, investors may not be too hyped to pay that kind of premium for a stock with negative earnings growth.
But there’s way more than meets the eye here. First, remember that Disney just had a record year at the box office in fiscal 2019. With estimates coming down over the past three months — from $1.49 per share to $1.46 per share — and with the stock price under pressure, Disney may have a low bar to hurdle. Particularly with its latest Star Wars film and Frozen 2 falling in fiscal Q1 of 2020.
However, most of Disney’s blockbusters will fall in fiscal 2019 and therefore, make for a difficult year of comps. Further, spending on its Disney+ platform isn’t cheap, but it’s paving the way to some serious momentum.
After just launching a few months ago, Disney+ has already registered more than 23 million U.S. subscribers. That lags Apple (NASDAQ:AAPL) TV+ and its 33 million subscribers, as well as Amazon (NASDAQ:AMZN) Prime Video and Netflix (NASDAQ:NFLX) at 42.2 million and 61.3 million, respectively.
But Disney’s momentum in streaming is very impressive and shows that this platform will be far from a dud.
Yeah, maybe this year’s comps will be tough and yeah, Disney+ costs will a bit of a weight on the bottom line. At the end of the day though, Disney remains the same entertainment juggernaut as before. Only this time, it’s got a library of rich content — even more so after the Fox acquisition — and it’s a perfect fit for long-term streaming success.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he was long AMZN, DIS and AAPL.
