It's a good sign when a Wall Street pro warms up to a stock the day before the company reports quarterly results. Stifel Nicolaus boosted its price target for Walt Disney (NYSE:DIS) on Monday morning. Disney is slated to report earnings Tuesday.
The move raises Stifel Nicolaus' price goal from $120 to $130 and reiterates its bullishness. The boost makes sense. The stock closed at exactly $120 on Friday, hitting yet another all-time high earlier in the day. It's hard to have a bullish rating on a company when the target price is exactly where it's perched. However, hitting a price target could also be an appropriate time for an analyst to lower a stock's rating using the argument that it's now fully valued. Stifel Nicolaus doesn't see it that way, and now it's pointing to $130.
Stifel Nicolaus isn't alone. A few companies have beefed up their convictions on the family entertainment giant. Topeka Capital Markets and Atlantic Equities upgraded shares of Disney last month, bumping neutral ratings up to bullish ones.
The Stifel Nicolaus note stands out -- even if it's just a price target update -- largely because the move is being made the day before Disney reports financial results for its fiscal third quarter. An analyst has to be fairly well convinced that a publicly traded company is about to deliver a blowout report in making a move like this. You don't want to find yourself with egg on your face a day later if shares of Disney crash in after-hours trading on Tuesday afternoon, following unflattering results.
Now, it may seem like a no-brainer to sing Disney's praises from the soapbox. This is the company behind most of the world's most-visited theme parks. ESPN is as popular as ever. Spending billions to acquire Pixar, Marvel, and Lucasfilm have been paying off in a big way lately. However, as I pointed out over the weekend, Wall Street's actually holding out for a rather ho-hum quarter out of the House of Mouse after Tuesday's market close.
The market sees $13.22 billion in revenue for the quarter, just 6% ahead of last year's fiscal third quarter. You would have to go back two years -- to the June quarter of 2013 -- to find the last time that Disney didn't grow its top line by at least 7% when pitted against the prior year, according to S&P Capital IQ data.
Disney may be hitting on all cylinders, but there are a couple of factors making the year-over-year comparisons challenging.
- The Easter break holiday fell in March this year, unlike April last year, inflating theme park results during the fiscal second quarter this time around, but likely coming at the expense of the fiscal third quarter.
- Disney's had a lot of big hits at the multiplex this year, but the real money comes along later in the distribution cycle. This quarter also finds Disney being stacked up against the first full quarter of DVD and Blu-ray availability of Frozen.
- In the video game realm, Disney's financials will be competing against last year's results, which were part of the rookie year for Disney Infinity. The Skylanders-like product line helped make Disney's Interactive subsidiary its fastest-growing division on a percentage basis during last year's fiscal third quarter. That's not likely to be the case this time around.
Analysts do see margin expansion, targeting earning per share to climb 11% during the period. That is where Disney could impress tomorrow, especially given its tendency to land ahead of Wall Street's profit targets more often than not during CEO Bob Iger's run. So, yes, one analyst is getting loud at the right time, but expecting a blowout performance will require understanding just how strong last year's third quarter actually turned out to be.
Rick Munarriz owns shares of Walt Disney. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. 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.