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Disney Stock Has a Lot to Prove on Thursday

By Rick Munarriz – Nov 8, 2016 at 6:27PM

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The media giant reports fiscal fourth-quarter results on Thursday afternoon. There's a lot riding on the report, with the stock trading well off last year's all-time highs.

Image source: Disney.

It's been 15 months since shares of Walt Disney (DIS) hit all-time highs. The stock peaked hours before the media giant reported its fiscal third-quarter results, signaling weakness at ESPN and its other cable properties. Those concerns haven't gone away as we head into fresh financials out of Disney later this week, and in fact they have only intensified. 

Ratings tracker Nielsen recently reported that ESPN lost a whopping 621,000 homes last month, a figure that Disney went on to dispute. Disney's own filings show that the leading sports network has shed millions of subscribers since peaking at 100 million in fiscal 2010, but shedding 621,000 accounts in a single month would be devastating. You can be sure that Disney will be asked about ESPN and the Nielsen report during Thursday afternoon's earnings call. 

There will also be concerns about Disney's theme parks, something that hasn't historically been an issue during times of economic expansion. Disney's domestic resorts experienced a 4% dip in attendance during the June quarter, and the biggest mystery here heading into Thursday's report is if it blames Latin American tourism trends or its own ill-advised price increases for the likely shortfall at the turnstiles. 

It doesn't have to be that way. SeaWorld Entertainment (SEAS) surprised the market with positive attendance trends when it announced quarterly results for the same three-month period on Tuesday morning. Guest counts continue to improve for SeaWorld's parks in Southern California and finally turned positive in Central Florida, a reasonable drive from Disneyland and Disney World, respectively. If the seemingly out-of-favor SeaWorld can turn things around, one would think a more endearing and less controversial brand like Disney should be able to follow suit.

The big difference between SeaWorld and Disney is that SeaWorld managed to post a decline in revenue and a sharp slide in profitability despite improving visitor tallies at its largest theme parks. Disney's been able to still grow the segment's revenue and operating income as guests paying more have more than offset the fewer visitors at the parks.

Expectations aren't Goofy

Analysts are holding out for a mixed and ho-hum showing for the financial results that will be revealed shortly after Thursday's market close. They see revenue of $13.52 billion, less than 1% ahead of where it was during last year's summertime period. Wall Street pros are also targeting a profit of $1.16 a share. Disney earned a $1.20 a share on an adjusted basis a year earlier.

A marginal uptick on the top line and an outright decline on the bottom may not sound like the Disney that you know, but it's also important to remember that the fiscal fourth quarter was a hard act to follow. Disney posted a 9% uptick in revenue and a 35% surge in adjusted earnings during the last reporting period of fiscal 2015. Media giants are prone to lumpy financials, even one with the steady media and theme park properties that Disney is fortunate to own. Look back to fiscal 2014 and Wall Street's projections for tomorrow look a lot better in sizing up two-year growth come Thursday's report.

Disney may disappoint investors as it owns up to the demons at ESPN and the challenges in turning its theme park attendance around. However, the stock having surrendered more than 20% of its value since last year's summertime peak also resets expectations here. If Disney can paint a rosier future than the brush strokes of its present circumstances suggest, shares of the media giant may hold up in Thursday's after-hours trading.

Rick Munarriz owns shares of SeaWorld Entertainment and Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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