Is Disney Ready to Continue Its Bull Run?

With shares of Disney (NYSE:DIS) trading around $65, 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.

Bob Iger, Disney’s chairman and chief executive, says that the studio might create content specifically for Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), or other similar online-streaming providers in the near future, in what amounts to another signal that the largest studios are increasingly focusing on finding ways to succeed in the new home-entertainment landscape.

Disney ‘s CEO made the comments in a television interview on Fox Business Network Tuesday when asked about the future of Disney’s entertainment content now that platforms such as Netflix and Amazon are becoming increasingly ubiquitous in use. Iger hinted that content created for the specific online platforms could come from a variety of Disney’s most popular assets, including Lucasfilm, Marvel, Pixar, or ESPN.

T = Technicals on the Stock Chart Are Strong

Disney stock has been flying higher in recent years. The stock has paused for most of this year as it digests gains from its recent bullish 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 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

22.37%

73%

71%

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

October Options

Flat

Average

November 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

0.00%

31.75%

-3.75%

17.34%

Revenue Growth (Y-O-Y)

4.42%

9.61%

5.21%

3.42%

Earnings Reaction

-1.70%

-0.12%

0.42%

-5.95%

Disney has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Disney’s recent earnings announcements.

P = Weak 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

31.29%

73.69%

38.39%

50.35%

45.38%

Disney has been a poor relative performer, year-to-date.

Conclusion

Disney is a global entertainment company that aims to deliver smiles to many consumers worldwide. It is being reported that the company is considering creating digital content specifically for Internet streaming services. The stock has seen a strong run in recent years but is now consolidating as it digests gains from its recent move higher. Over the last four quarters, earnings and revenues have been rising, however, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, Disney has been a weak year-to-date performer. WAIT AND SEE if Disney can break above its consolidation range.

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