What Will Disney Stock Do Post Earnings?

With shares of Disney (NYSE:DIS) trading around $66, 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 has managed to beat Wall Street’s expectations of earnings despite taking a massive hit on the floundering Lone Ranger movie. For the quarter the company estimated a 36 percent loss in operating revenue due to the film, and projects a loss on the film of $160 to $190 million in the fourth quarter.

T = Technicals on the Stock Chart are Strong

Disney stock has been trending higher in recent times. In the last couple of months, the stock has been digesting gains after a big run. 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 slightly above its rising key averages which signal neutral to bullish 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

20.19%

0%

0%

What does this mean? This means that investors or traders are buying a very minimal 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 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 minimal 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

1.98%

36.21%

-3.75%

17.34%

Revenue Growth (Y-O-Y)

4.42%

9.89%

5.21%

3.42%

Earnings Reaction

-1.49%*

-0.12%

0.42%

-5.95%

Disney has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have grown to expect more from Disney’s recent earnings announcements.

* As of this writing

P = Average Relative Performance Versus Peers and Sector

How has Disney stock done relative to its peers, Dreamworks Animation (NASDAQ:DWA), Time Warner (NYSE:TWX), Twenty-First Century Fox (NASDAQ:FOXA), and sector?

Disney

Dreamworks

Time Warner

Twenty-First Century Fox

Sector

Year-to-Date Return

32.50%

65.66%

36.09%

43.04%

38.17%

Disney has been an average relative performer, year-to-date.

Conclusion

Disney is a global media company that provides entertainment to consumers around the world. A recent earnings announcement has market participants a bit disappointed. The stock has been steadily rising but is now trading sideways as it digests new information. Over the last four quarters, earnings and revenue figures have been rising, however, investors in the company have grown to expect more. Relative to its peers and sector, Disney has been an average year-to-date performer. Look for Disney to OUTPERFORM.

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