Analysts are wary of Walt Disney’s [DIS] upcoming full-year results, following a disappointing earnings announcement for the third quarter that led to its share price falling nearly 5% in August.
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Despite having a blockbuster year at the box office, Disney’s income statement had been weighed down by various costs including its big bet on streaming, low footfall in its theme parks and bloopers from recently acquired Fox film studio.
Looking to its fourth quarter and annual earnings results, which are expected to be announced after the bell on 7 November, the company has warned investors and analysts that the Fox deal will continue to impact earnings. CFO Christine McCarthy told analysts in August that she expected the acquisition to lower Q4 profit by $0.45 a share.
According to CEO Bob Iger, the legacy film studio’s performance was “well below where it had been, and well below where we hoped it would be when we made the acquisition”.
As a result, analysts are forecasting an earnings per share range from $0.88 to $1.08 with a consensus estimate of $0.95, according to data from CNN, suggesting nearly a 30% drop from the previous quarter’s $1.35.
JP Morgan [JPM] analyst Alexia Quadrani lowered her earnings per share estimate from $1.05 to $0.95 a share at the start of the month, and dropped the forecast for fiscal 2020 from $6.30 to $5.50.
“The investment spending in Disney's direct to consumer platforms and the choppy integration of Fox's assets lead to more uncertainty in the financial outlook near term,” Quadrani said in a note to clients.
JP Morgan also suggested estimate revisions are likely to continue over the next few quarters, given the company’ expansion efforts in integration and media consumption proceeds.
“The investment spending in Disney's direct to consumer platforms and the choppy integration of Fox's assets lead to more uncertainty in the financial outlook near term” - JP Morgan analyst Alexia Quadrani
All eyes on streaming future
However, as the fight for subscribers begins to ramp up, Disney+ appears to have a strong head after gaining access to about 50 million US subscribers following a promotion by Verizon Communications [VZ], putting it close to the size of Netflix’s nearly 61 million US subscriber base.
The deal, which was announced on 22 October, would see the telecoms provider offer all of its new and existing customers a one-year subscription to Disney+ for free, under a wholesale deal arrangement with the media conglomerate.
The announcement prompted a 1.6% rise in Disney’s share price as both Netflix’s and Apple’s respective stock prices were dropped, by 4% and 0.22%, while Verizon shares were largely unchanged.
Meanwhile, Apple announced a one-year free subscription deal for Apple TV+ for all customers purchasing new Apple products after the platform’s 1 November launch, adding further pressure on AT&T’s [T] HBO Max streaming service.
|PE ratio (TTM)||16.92|
|Quarterly Revenue Growth (YoY)||32.90%|
Disney share price vitals, Yahoo Finance, 06 November 2019
Is an earnings spike on the cards?
While Disney’s share price did have a slow start at the beginning of the year, a significant spike before the company’s earnings report in May has since put it broadly in line with the S&P 500’s year-to-date performance.
Following the Q2 earnings spike, the share price continued its upward trend, rising 4.6% to this year’s high of $146.39 on 29 July. However, the stock has since fallen 9.9% to $131.85 (as at 5 November).
Whether Disney will see its share price pop again ahead of its earnings announcement will depend on the performance of the company’s media network business (a key metric for analysts) and parks, experiences and products unit, which each accounted for roughly a third of total revenue last quarter.
Indeed, revenues are expected to rise 33% from the same period a year ago to $19.03bn, according to Zacks Equity Research, continuing the past year’s steady growth. The estimate includes Disney’s ownership of Fox and Hulu, which had been included in last quarter’s results.
Expected revenue rise to $19.03bn
As it stands, 19 out of 25 analysts have a consensus buy rating and six a hold on the stock with an average price target of $154.50, suggesting a 17% rally from the current level.