Will Disney Resume Its Uptrend?

disney

With shares of Disney (NYSE:DIS) trading around $64, is the company 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 been in the news quite frequently lately. It was announced recently that chairman and CEO Robert Iger will remain at the head of the company for longer than expected. The company shares interest in Hulu with Comcast (NASDAQ:CMCSA) and 21st Century Fox (NASDAQ:FOXA) that may be sold to potential bidders in the video streaming service.  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 soared higher in the past few years and does not see any significant long-term signs of slowing. Currently, the stock is taking a breather before its next move. Analyzing the price trend and its strength can be done using key simple moving averages: 50-day (pink), 100-day (blue), and 200-day (yellow). As seen in the daily price chart below, Disney is trading between 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 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

26.11%

86%

83%

What does this mean? This means that investors or traders are buying a 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 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.

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 year-over-year revenue growth 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 in the past four quarters. From these numbers, the markets have mostly been pleased with Disney’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

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

Disney

Dreamworks

Time Warner

21st Century Fox

Sector

Year-to-Date Return

29.68%

56.85%

27.33%

36.85%

28.46%

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

Conclusion

Disney is a global entertainment company that sends smiles to many consumers. The stock has been exploding higher over the last few years, which has taken it to all-time high prices. Over the last four quarters, investors in the company have been pleased as earnings and revenue figures have been rising. Relative to its strong peers and sector, Disney has been an average year-to-date performer. Look for Disney to OUTPERFORM.

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