Shares of Walt Disney (DIS 1.01%) are hitting new 52-week highs this week, and they are now less than 3% away from taking out the all-time highs that were set three years ago. The media giant has languished since its mid-2015 peak, but its stock has rallied by more than 20% since this year's springtime bottom.
Disney isn't necessarily doing anything different now than it's been doing over the past three years. The shares are largely benefiting from a flight to quality, as investors rotate out of tech darlings and riskier international growth stocks. Let's go over the things that Disney must do to make sure it clings to the bullish momentum and establishes new all-time highs.
Image source: Disney.
1. Q4 needs to be a blowout
Nothing stops a rally as quickly as a dud quarter, and we're now just two weeks away from Disney's next financial update. Disney reports results for its fiscal fourth quarter on Nov. 8, and expectations are surprisingly high. Analysts are targeting $13.72 billion for the three months ending in September, a 7.4% year-over-year gain. This may not seem like head-turning growth, but it would be Disney's second strongest growth spurt in more than two years. It's coming off of depressed results as revenue actually declined in the fiscal fourth quarters of 2016 and 2017.
Expectations are even higher on the bottom line, as Wall Street pros see Disney's earnings soaring 24% to $1.33 per share for the quarter. The family entertainment leader actually fell short of analyst profit targets last time out, so it really can't afford to fall short again.
2. Disney's upcoming video service needs to be a winner
Disney will soon have a controlling stake in Hulu, but it has loftier intentions in the realm of streaming services. A Disney-branded premium streaming service should roll out next year, and the House of Mouse won't just be phoning it in. It's already starting to claw back content it licenses through third-party platforms, and it's announced plans for proprietary content based on its biggest franchises.
Losing licensing revenue will sting in the near term, and bankrolling game-changing content won't come cheap. However, Disney knows that the future of media consumption isn't the way folks have been viewing in the past. It's not a secret. The stock took a hit the day after hitting its all-time high three years ago, after Disney voiced problematic subscriber trends at ESPN and its other cable properties. Disney needs to go from being the disrupted to being the disruptor in the cord-cutting revolution, and it will rest largely on a strong and punctual launch of its namesake streaming service.
3. Big theme park investments will need to pay off
After years -- if not decades -- of resting on the laurels of its top-drawing theme parks, Disney is finally breathing new life into its largest resort. Disney World in Florida has major additions to its parks, lodging, and even park-to-park transportation that will go online in the next three years, culminating in the resort turning 50 in the fall of 2021.
It rolled out another wave of price increases at Disney World last week, and the new rides and attractions better be worth it. Disney's theme parks segment is its second-largest revenue maker, and it's also been the most reliable. The market's acceptance of both the additions and the higher price tags will go a long way in dictating the stock's direction.
