Is Disney Ready to Entertain Your Portfolio?

With shares of Disney (NYSE:DIS) trading around $86, is DIS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Disney is a diversified worldwide entertainment company. The company operates in five business segments: media networks, parks and resorts, studio entertainment, consumer products, and interactive. Disney offers entertainment that sends smiles to consumers across a range of countries around the world. Its movies and shows, theme parks, and products have remained a main attraction for many years and will continue well into the future.

Disney announced 11 startups that have been selected for a special mentorship and investment program. Kicking off on Thursday, Disney Accelerator, powered by Techstars, is a 15-week immersive program that gives companies access to mentorship from top Disney executives, up to $120,000 in investment capital to develop their companies, as well as special access to resources from across Disney. On Thursday, shares of Disney opened at $86.53 and closed at $86.86. This year, the company’s EPS growth is 8 percent, and next year’s estimated EPS growth is 4.63 percent.

T = Technicals on the Stock Chart Are Strong

Disney stock has been flying higher in recent years. The stock is currently trading near all-time highs and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Disney is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Disney options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Disney Options

21.34%

96%

94%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of Friday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Disney’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Disney look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

30.12%

33.77%

13.24%

0%

Revenue Growth (Y-O-Y)

10.43%

8.55%

7.29%

4.42%

Earnings Reaction

-0.91%

5.29%

2.12%

-1.7%

Disney has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Disney’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Disney stock done relative to its peers – Dreamworks (NASDAQ:DWA), Time Warner (NYSE:TWX), 21st Century (NASDAQ:FOXA) — and sector?

Disney

Dreamworks

Time Warner

21st Century

Sector

Year-to-Date Return

13.68%

-36.22%

3.58%

1.54%

-3.35%

Disney has been a relative performance leader, year-to-date.

Conclusion

Disney is a global entertainment company that aims to deliver smiles to many consumers worldwide. The company announced 11 startups that have been selected for a special mentorship and investment program. The stock has seen a strong run in recent years and is currently trading near all-time highs. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased. Relative to its peers and sector, Disney has been a year-to-date performance leader. Look for Disney to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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