Does Disney Belong in Your Portfolio?

With shares of Disney (NYSE:DIS) trading around $73, 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.

Robert Iger, Walt Disney Co.’s chairman and chief executive officer, earned $34.3 million in total pay in fiscal 2013, a 15 percent drop as the company failed to beat its targets as handily as the prior year. Iger’s pay, based on regulatory reporting rules, included $2.5 million in salary, unchanged from a year ago, along with $8.8 million in stock awards, $8.48 million in option awards and a bonus of $13.6 million, according to a filing by Burbank, California-based Disney. His compensation totaled $40.2 million on that basis a year earlier.

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 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

20.99%

46%

43%

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

January Options

Flat

Average

February 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

13.24%

0.00%

31.75%

-3.75%

Revenue Growth (Y-O-Y)

7.29%

4.42%

9.61%

5.21%

Earnings Reaction

2.12%

-1.70%

-0.12%

0.42%

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 = 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

47.68%

111.60%

45.89%

60.55%

51.37%

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

Conclusion

Disney is a global entertainment company that aims to deliver smiles to many consumers worldwide. The company’s chairman and chief executive officer, earned $34.3 million in total pay in fiscal 2013, a 15 percent drop as the company failed to beat its targets as handily as the prior year. The stock has seen a strong run in recent years and is now trading near all time highs. Over the last four quarters, earnings and revenues have been rising, which has investors pleased with the company. Relative to its peers and sector, Disney has been an average year-to-date performer. Look for Disney to OUTPERFORM.

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