Disney Q3 preview: Where next for DIS stock?

Disney is set to report double-digit earnings growth as its theme parks recover from the pandemic.

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When will Disney release Q3 earnings?

Disney will release third quarter earnings after US markets close on Wednesday August 10. The company will hold a live webcast on the same day at 1630 ET, or 1330 PT.

 

Disney Q3 earnings consensus

Wall Street forecasts Disney will report a 23% rise in revenue to $21.0 billion from the $17.0 billion reported the year before, while adjusted EPS is expected to rise 20% to $0.96 from $0.80.

 

Disney Q3 earnings preview

Disney continues to bounce back from the pandemic and is expected to deliver double-digit revenue and earnings growth in the third quarter.

This will be driven by the recovery of its theme parks and resorts, which are now back up and running after being closed for lengthy periods during the pandemic. Its Parks, Experience & Products division is forecast to report a 13% rise in revenue to $14.3 billion, while operating income is set to soar to $1.7 billion from just $356.0 million the year before.

Meanwhile, its vast media and entertainment division will continue to contribute toward topline growth as its streaming services and content continue to gain traction, although profits will suffer a notable drop as it ramps up spending on new content and earns lower licensing fees. The Media & Entertainment Distribution arm is expected to report a 53% jump in revenue to $6.7 billion. Operating profit is forecast to drop 25% from last year to $1.5 billion.

Below is an outline of what to expect from each division in terms of revenue and profits in the third quarter, according to the latest consensus numbers from Bloomberg:

Revenue (Billions)

Q3 2021

Q3 2022E

YoY Change

Media & Entertainment

$12.7

$14.3

13%

Parks, Experiences & Products

$4.3

$6.7

53%

Total Revenue

$17.0

$21.0

23%

Operating Profit (Billions)

Q3 2021

Q3 2022E

YoY Change

Media & Entertainment

$2.0

$1.5

-25%

Parks, Experiences & Products

$0.4

$1.7

382%

Total Operating Profit

$2.4

$3.4

42%

 

Notably, some analysts believe Disney’s theme parks could surprise in terms of profit this quarter after rival NBCUniversal, which is part of Comcast, saw theme park profits almost treble in the three months to the end of June and hit a new all-time record for the second consecutive quarter. Asia is still the unknown to watch this quarter and will still be a concern as Covid-19 disruption persists, but Disney’s park in Hong Kong started to welcome guests again back in April and the park in Shanghai reopened at the end of June (albeit with restrictions).

The other major focus will be on Disney’s streaming services that lie within its Media & Entertainment arm, especially Disney+. Wall Street believes Disney+ added 10.7 million subscribers during the period and ended the quarter with 148.4 million of them on its books, up from 137.7 million at the end of the second quarter and 28% above the 116.0 million it had a year ago.

Disney+ is aiming to have 230 million to 260 million subscribers by 2024 and investors will want to see this goal reiterated, especially after market-leader Netflix started to lose subscribers this year and Disney lost the rights to the Indian Premium League. We have seen other streaming services suffer from a slowdown in recent months as competition intensifies and users show signs of pulling back on spending amid the cost-of-living crisis, but Disney has said it expects subscriber growth to be faster in the second half compared to the first.

ESPN+ is expected to have ended the quarter with 23.2 million subscribers, up 55% from the year before, while the number of Hulu subscribers is set to rise 8.3% to 46.4 million.

 

Where next for DIS stock?

Disney shares have rallied over 16% since mid-June, when it sank to its lowest level since the pandemic injected turmoil into the markets back in March 2020.

However, the stock tried and tested $109 last week with little success, making this the first key upside target. This also proved to be a tough level of resistance when the stock was trying to rebound from the pandemic-induced lows back in 2020. If it can break above here, then the June-high of $112 comes into view, in-line with the 100-day moving average. A break above here could lead to swifter gains, first to the $121 floor seen back in September and October 2020 and then to the $129 level of support seen during the first four months of 2022.

Notably, the 32 brokers that cover Disney remain bullish on the stock, with 25 of them believing it is undervalued. The average target price of $141 implies there is over 32% potential upside from current levels over the next 12 months.

The RSI is in bullish territory, but trading volumes have waned during the latest uptrend and only started to increase during the past five sessions, when it has lost momentum. If it comes under renewed pressure, shares could drift back toward the 50-day moving average at $100, which has emerged as a level of support on several occasions this year. That must hold or the 28-month low comes back into play.

Disney stock has risen 16% since mid-June

 

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