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Theme Parks, ESPN and Succession Plans: A DIS Earnings Trilogy

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February 7, 2017
Profit report for Disney and market outlook.
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The narrative ahead of Walt Disney Co.’s (DIS) 2017 fiscal first-quarter report, due out after the market closes Tuesday, revolves around three central themes—broadcast and movie revenues, theme parks and resorts, and company succession plans.

ESPN and the Broadcasting Business

Long considered DIS’ cash cow, ESPN’s numbers have been falling as consumers continue to cut the cords of their cable providers in search of cheaper alternatives. But in Q4, Chief Executive Robert Iger said ESPN would recover and some analysts have upgraded the stock on that belief. At 26% of revenues, ESPN is the second highest revenue generator for DIS, just behind parks and resorts, which contribute 29% of the total.

Other analysts say they’ll be looking for more insight on how things are going at the sports network and where growth will come from. Remember, too, that DIS has a number of other channels feeding into its broadcast revenues, in its ESPN, Disney and ABC network families.

(Disney) World Expansion

Meanwhile, DIS’ other segments, which include its eponymous theme parks and resorts, the blockbuster movie business, and the consumer products business that allows DIS to leverage its famous characters, movies and brands, appear to be operating well on a domestic level, according to the company. Internationally, some parks and resorts have seen their numbers shrink but Iger has been so enthused with the successful Shanghai theme park opening last year that the company has “already made a decision about expansion and that’s already begun,” he said on the Q4 conference call. In the most recent quarter, DIS cautioned that fiscal 2017 would bring modest earnings-per-share growth, mostly because of “comparability factors” to last year.

Some analysts have warned, too, that DIS results have a high hurdle to jump on a year-over-year comparison. Star Wars: The Force Awakens, which opened ahead of the holidays in 2015, exceeded $2 billion in global box office revenue and was among the biggest drivers of DIS’ record-breaking $7.5 billion in total box office sales in 2016, the company said. Four other films broke through the $1 billion mark in worldwide box office.  

A New Master, You Seek?

And what about succession plans? A Wall Street Journal story said Monday that Iger, who has delayed his retirement three times, may do so again to coach whomever succeeds him. His last agreement on the issue was that he would retire in 2018.

“The prevailing theory is that Bob will have to extend (his employment) to train his replacement,” WSJ quoted a Disney executive. “There will be a steep learning curve for whoever comes in and no one believes Bob or the board wants to set someone up to fail.” 

On Wall Street, consensus revenue estimates stand at $15.26 billion, about flat to last year’s revenue of $15.24 billion, according to third-party consensus estimates on the Earnings Analysis* tab on the thinkorswim® platform from TD Ameritrade. Per-share profit projections are at $1.47, below the $1.63 from a year ago.

The options market has priced in an expected share price move of just under 3% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Options have seen increased volume at the 110 calls and the weekly 105 puts. The implied volatility sits at the 32nd percentile. (Please remember past performance is no guarantee of future results.)

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.

DIS, 3m

FIGURE 1: DRIVING DISNEY.

Shares of DIS have rallied alongside the markets in the post-election ride, up better than 16% since and just off their 52-week highs. The stock is trading nearly 4% above its 50-day moving average. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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