Disney Earnings Coming Up, Streaming and Fox Assets in Focus

Entertainment conglomerate Walt Disney Company (DIS) reports fourth-quarter earnings after the closing bell on Thursday, Nov. 8. As DIS integrates the assets it bought from Fox, here’s a look at what might be expected from its quarterly report.

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Walt Disney Company (DIS) reports fiscal fourth-quarter earnings after market close on Thursday, Nov. 8. 

For the quarter, DIS is expected to report adjusted EPS of $1.34, up from $1.07 in the prior-year period, on revenue of $13.73 billion, according to third-party consensus analyst estimates. Revenue is projected to grow 7.5% year over year. 

Of the $13.73 billion estimate for this quarter, analysts project $5.71 billion in revenue from the Media Network segment, $5.08 billion from Parks and Resorts, $1.78 billion from Studio Entertainment and $1.16 billion from the Consumer Products and Interactive Media division.

Over the course of the quarter, the company has continued to make progress on its acquisition of entertainment assets from 21st Century Fox (FOXA). The latest update was Tuesday when the European Commission granted conditional approval, provided DIS divests of certain TV assets, such as A+E Television Networks and the History Channel. DIS already got approval from the U.S. Justice Department in June, which included the condition that it sell Fox’s regional sports networks. 

Since CEO Bob Iger spent almost all of his time on last quarter’s earnings call discussing the rationale and strategy behind the acquisition, he might focus more on the company’s plans post-acquisition. DIS did just announce specific FOXA film executives that would join its Studio Entertainment management team, pending the closing of the acquisition. 

The Studio Entertainment division has been a driver of DIS’ top and bottom-line growth in recent quarters. In its most recent report, the segment grew the fastest and was up 20% year over year to $2.88 billion, while operating income increased 11% to $708 million. 

Questions About Streaming Services

This has been one area that analysts and investors have honed in on for a while. CEO Iger has made it clear that one reason behind the FOXA acquisition was to help build out the company’s content portfolio for its late-2019 launch of direct-to-consumer (DTC) streaming service. Outside of a few details though, there isn’t a whole lot that analysts and investors know about the service. 

That’s not the only streaming service DIS has its hands in. The FOXA acquisition would also give DIS 60% ownership of streaming service Hulu, with Comcast (CMCSA) and AT&T (T) owning the remaining chunk. 

Some analysts think DIS might not be able to purchase the remaining stakes it doesn’t own. And with its own streaming service planned, plus the ESPN+ streaming service launched earlier this year, some have questioned how Hulu fits into the overall strategy. 

The ESPN+ streaming service that was launched in April 2018 is likely to be another area analysts are looking for more information on today’s call. That move was made to help offset declining subscribers for ESPN’s traditional-TV channels and so far management has only said that subscriber numbers had exceeded their expectations.

Disney 5 Year Chart. DIS has been getting back within striking distance of its all-time high of $122.08 from mid-2015. That $120 to $122 area has been a big resistance level for DIS and it has come close to it this year, but so far hasn’t been able to break above it. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Disney Options Activity

Options traders have priced in about a 3% stock move in either direction around DIS’ earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility is at the 51st percentile as of this morning, lower than historical volatility, which is at the 85th percentile. 

In short-term trading at the Nov. 9 weekly expiration, calls have been active at the 115 and 116 strike prices. There has also been higher volume at the 120 and 121 strikes, just above the stock’s 52-week high of $119.69. On the put side, recent activity has been mostly at the 114, 115 and 116 strike prices. 

At the Nov. 16 monthly expiration, calls have been active at the 115 and the 120 strikes, while puts have been active at the 115 and 117 strikes. Open interest is also high at the 120-strike put, right about where the stock was trading a few weeks back. 

Over the next several months of expiration, there has been heavier volume and open interest between the 120 strike and the 130 strike on the call side. The positioning typically suggests traders expect the stock to run a ways if it’s able to get through that long-term resistance.  

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Good Trading,

JJ

@TDAJJKinahan

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