Walt Disney Earnings Preview: Reaching For The Stars

Walt Disney DIS, which is making every effort to exploit its recently acquired Marvel and Star Wars franchises, is scheduled to report its fiscal second-quarter results Tuesday, May 6, after the markets close.

Analyst sentiment is optimistic about the growth prospects of animation studio content through 2015; its Frozen recently broke $1 billion in sales. The company may also be ready to talk more about its Star Wars plans, which it has been keeping somewhat close to the chest. Investors also will have an eye on the increased share buybacks.

See also: Benzinga Weekly Preview: Earnings Season Continues, Albeit A Tad Slower

Expectations

Analysts on average predict that Disney will report that its revenue for the quarter increased more than six percent year-over-year to $11.23 billion. Earnings of $0.95 per share are also in the consensus forecast. That would be a jump from a reported profit of $0.79 per share in the comparable period of last year.

Note that the consensus earnings per share (EPS) estimate has remained steady over the past 60 days. But the company beat analysts' EPS expectations in the previous quarter by 13 percent. Analysts have underestimated EPS in the past four quarters.

Disney attributed record first-quarter EPS results to double-digit increases in operating income in all business segments. "These results reflect the strength of our unprecedented portfolio of brands, a constant focus on creativity and innovation, and the continued success of our long-term strategy," said the CEO. The share price rose more than eight percent in the week following the first-quarter report.

Looking ahead to the current quarter, the forecast currently calls for year-over-year and sequential growth on both the top and bottom lines. That consensus EPS estimate also is unchanged in the past 60 days. Full-year revenue so far is projected to be less than seven percent higher than in the previous fiscal year.

The Company

The Walt Disney Company is a global entertainment company that operates in five segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. It is the largest media conglomerate in the world in terms of revenue.

The company was founded in 1923, and its headquarters are in Burbank, California. Disney is a component of the S&P 500 and the Dow Jones Industrial Average, and it now has a market capitalization of more than $140 billion. Bob Iger has been the chief executive officer since October 2005 and president since January 2000.

Competitors include Time Warner and Viacom. Both companies reported better-than-expected quarterly earnings last week, but the former saw strong revenue growth while the latter posted marginal revenue growth. Time Warner is also in the process of spinning off Time Inc.

During the three months that ended in March, Disney had a global hit in the animated film Frozen, raised theme park admission prices, expanded its relationship with IMAX, picked a new head of ABC TV and announced it would buy Maker Studios from YouTube.

See also: Disney Raises Park Admission Prices

Performance

Disney has a long-term earnings per share growth forecast near 16 percent and a price-to-earnings (P/E) ratio that is less than the industry average. Its operating margin is greater than the industry average, and it has a return on equity of about 15 percent. Its dividend yield is about 1.1 percent.

The number of Disney shares sold short, as of the most recent settlement date, represented more than two percent of the total float. The level of short interest has changed little since the end of February. At the current average daily volume, it would take about five days to close out all of the short positions.

Of the 29 analysts surveyed by Thomson/First Call who follow the stock, eight rate it at Strong Buy and another nine also recommend buying shares. The analysts' mean price target, or where they expect the stock to go, is less than six percent higher than the current share price.

At the time of this writing, shares were up about 14 percent since the end of January, but much of that gain came in February. The share price is just above the 50-day moving average. Over the past six months, the stock has outperformed the competitors mentioned above, as well as Twenty-First Century Fox, Sony and the broader markets.

At the time of this writing, the author had no position in the mentioned equities.

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