Disney Looks to Cash In on Its Success

Tomorrow, Disney (DIS -2.25%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever surprises inevitably arise. That way, you'll be less likely to have an uninformed, knee-jerk reaction that turns out to be exactly the wrong move.

As a major entertainment force in the Dow Jones Industrials (^DJI -1.30%), Disney has made a series of hugely lucrative strategic decisions that have produced massive growth for the company. And with Disney's recent blockbuster releases, the future is looking even better. Let's take an early look at what's been happening with Disney over the past quarter and what we're likely to see in its quarterly report.

Stats on Disney

Source: Yahoo! Finance.

Will Disney fly like Iron Man this quarter?
In recent months, analysts have become even more optimistic about Disney's earnings, pushing up their estimates for the just-finished quarter by a penny per share and adding $0.06 to their full-year fiscal 2013 EPS consensus. The stock has soared, jumping 20% since late January and hitting all-time highs.

Iron Man 3 and its huge opening weekend are just the tip of the iceberg for Disney's movie production segment, as the company's buyout of Marvel Entertainment several years ago has paid off big-time with multiple blockbuster series. Disney's $4 billion acquisition of Lucasfilm in late 2012 hasn't even started to kick in on the sales front, with thousands of new characters on which to base films or other forms of entertainment content.

Yet Disney knows how important it is to control how that content gets to its audience. Early in the year, Disney made a multiyear deal to provide content to AT&T (T 0.70%) for its U-verse digital network, embracing multiple distribution channels beyond its previous deal with online-streaming giant Netflix (NFLX -0.91%) and demonstrating the sway its premium-quality content gives it among content distributors hungry to deliver that content to their customers. For its part, Netflix needs Disney in order to establish itself as the premier digital streaming company, while AT&T desperately needs to boost its content availability in order to retain customers who might otherwise flee to alternative content-providers.

Disney is also picking and choosing its battles. Rather than continuing to make Star Wars-related games, the company decided to close the LucasArts game-development business, laying off 200 employees. Disney will clearly have its pick of premium outside game-developers to promote Star Wars content, and farming out the development to another company could end up bringing in more profit from licensing fees than Disney could make on its own.

In Disney's quarterly report, realize that short-term financials are only a small part of Disney's future prospects. With the company firing on all cylinders recently, only a somewhat rich valuation mars an otherwise promising investment opportunity.

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