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Disney Stock Has a Lot to Prove This Week

By Rick Munarriz - Aug 5, 2019 at 1:45PM

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It's going to be a record quarter for the media giant when it reports on Tuesday afternoon.

Things are heating up in the House of Mouse. Shares of Disney (DIS 3.29%) hit all-time highs last week. The stock has been cooling down lately -- heading lower for the fifth trading day in a row -- but expectations are still running high heading into this week's meaty financial update. 

Disney will post its fiscal third-quarter results shortly after Tuesday's market close. Wall Street sees revenue soaring 41% to hit a record $21.47 billion for the three months ending in June. If the projected growth spurt seems like a typo, it's not your eyes playing tricks on you. You have to go all the way back to fiscal 2004 to find the last time that Disney has posted double-digit percentage growth. Even the beefy acquisitions of Pixar, Marvel, and Lucasfilm along the way haven't lifted top-line gains above the single digits. The reason for the heady growth is the mid-March closing on its largest purchase to date: key Fox assets. The non-organic boost to Disney's bottom line will continue through the next three quarters. 

Mickey Mouse in front of the Magic Kingdom castle.

Image source: Disney.

Making still frames moves

It takes 24 frames of stills to create a second of animation, and there are seemingly as many moving parts to Disney's business these days. Media networks have historically been Disney's largest segment. Disney broadening the definition of its theme parks segment has made that business its largest top-line contributor these days, but media networks continues to lead the way when it comes to segment operating income.

Media networks has been a meandering segment for Disney in recent years, and given the carnage that the industry has suffered through cord-cutters eliminating their cable and satellite television, as well as a general viewership shift to commercial-free streaming services, it's a welcome surprise that the segment is keeping its head above water. There are things far worse than merely meandering in this industry. 

Disney's theme parks should turn in another robust performance. There have been concerns that its domestic theme parks seem less busy than they were a year ago. Even if the anecdotal evidence bears out in the form of flat or even declining attendance for the quarter, Disney's theme parks should continue to post positive top- and bottom-line growth in this segment given the meaty price hikes that have rolled out in recent months. 

Studio entertainment posted a sharp 21% decline in revenue in Disney's second quarter, but that segment is always going to be lumpy given the timing of major releases. There shouldn't be any concerns of that segment bouncing back, especially since it had three films roll out during the quarter that have each topped $350 million in domestic box office receipts. 

The top-line surge for Disney's overall business won't be matched on the way down the income statement. Analysts are holding out for a profit of $1.75 a share, just below what it earned a year earlier. With Disney investing in its theme parks, content, and the upcoming Disney+ streaming service, investors don't mind the near-term margin crunch. There are a lot of moving parts here, and Disney doesn't have to nail them all for this week's quarterly report to be considered a success.

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