Is Disney a Buy?

With shares of Disney (NYSE:DIS) trading around $64, 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. It’s movies and shows, theme parks, and products have remained a main attraction for many years and will continue well into the future.

Disney chairman and Chief Executive Officer, Robert Iger, will remain head of the company for longer than some had previously expected, as his contract has been changed to leave him at the helm of the company for another three years. A president or a chief operating officer has never been named so his successor is still unknown. As Disney continues to provide excellent entertainment, look for the company to remain a leader in the industry.

T = Technicals on the Stock Chart are Strong

Disney stock has been on an explosive surge higher over the last several years. The stock has pulled-back from all-time highs so it may need time before it continues a move higher. 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 between its rising key averages which signal neutral price action in the near-term.

DIS

(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

25.35%

76%

73%

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

July Options

Flat

Average

August Options

Flat

Average

As of today, 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?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

36.21%

-3.75%

17.34%

31.17%

Revenue Growth (Y-O-Y)

9.89%

5.21%

3.42%

3.87%

Earnings Reaction

-0.12%

0.42%

-5.95%

1.36%

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

P = Excellent Relative Performance Versus Peers and Sector

How has Disney stock done relative to its peers, Time Warner (NYSE:TWX), Dreamworks (NASDAQ:DWA), News Corp. (NASDAQ:NWSA), and sector?

Disney

Time Warner

Dreamworks

News Corp.

Sector

Year-to-Date Return

28.62%

24.27%

56.13%

-32.25%

22.67%

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

Conclusion

Disney provides entertainment through multiple channels to a growing worldwide audience. The current CEO, Robert Iger, has extended his contract for another three years. The stock has been on an explosive move higher, in recent years, but is now digesting gains from this run so it may need more time before its next leg higher. Over the last four quarters, investors in the company have been optimistic as earnings and revenue figures have been rising. Relative to its peers and sector, Disney has been a year-to-date performance leader. Look for Disney to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.