There's a lot of spinning in the dark for Walt Disney (DIS 0.18%) investors these days, and I'm not just talking about folks riding the new Guardians of the Galaxy indoor coaster at Disney World that officially opens later this month. The media giant finds itself back on top of the battle for box office receipts, and its theme parks are packed despite getting tangled up with conservative politicos in Florida.
The shares are now trading 47% below where they were at their peak 14 months ago. Disney reports fresh financials after Wednesday's market close. Let's go over some of the reasons it could be a better-than-expected quarterly report.
Image source: Disney.
It's a great big beautiful tomorrow
Expectations are reasonable heading into Wednesday's fiscal second-quarter report. Analysts expect the leading media stock to report revenue of $18.88 billion for the first three calendar months of this year. That translates into a beefy 21% increase from last year's showing, but keep in mind that Disney's cruise line and even Disneyland itself weren't open in the prior year's fiscal second quarter. Disney also held back on major theatrical releases -- outside of the poorly performing Raya and the Last Dragon in March of last year -- as major studios delayed high-profile films.
Analysts see earnings more than doubling to $1.07 a share, but Wall Street pros aimed too low last time. In short, the pieces are in place for Disney to deliver blowout results. With patrons returning to movie theaters, theme parks posting record revenue and operating income, and Disney cruise ships on the open seas again, the real shock here would be if Disney doesn't blow Wall Street estimates away.
Obviously, a strong quarter isn't enough. Disney produced an initially well-received fiscal first quarter, and the stock has plunged 27% since that report back in February.
Disney shares hit a 23-month low on Monday, so it shouldn't take much to impress the market this week. But things can still go wrong. Disney+ can have a rough quarter the way we saw the leading premium video service do last month. Cord-cutters and hesitant advertisers can eat it into its media networks business. It also doesn't help that even a "beat and raise" report isn't enough to trigger a rally lately.
There's also the surprising reality that Disney isn't as cheap as you might think for a blue chip that has been nearly cut in half since hitting all-time highs in March of last year. Disney is trading for 26 times this fiscal year's projected earnings and a more palatable 20 times next year's target. Losses at Disney+ that are expected to continue until 2024, and margins contracting from where they were six years ago are gnawing away at the bottom line.
We're not at peak Disney, and that goes for both the business and the stock. However, it's easy to see its theme parks and cruise lines continue to thrive barring a global recession. You don't want to bet against the momentum that Disney+ has generated in less than three years, and we're now two years away from when it adds to the bottom line instead of subtracts from it. As a bellwether for entertainment stocks, a well-received report can do more than lift the sentiment for just Disney stock. If it really surprises Wall Street -- in a market hungry for good news that it can sink its teeth too -- the House of Mouse could save the stock market itself.
