What to expect from Disney’s (DIS) earnings.

Disney DIS will report next week’s earnings in the company’s fiscal fourth quarter release on Tuesday, November 8. Up 44% from its highs, investors are hopeful that the Disney report could give DIS stock a much-needed boost.

Disney stock has historically been thought of as a combination of value and growth that can play a stable role in many diversified portfolios. However, Disney’s valuation has surged during the pandemic on streaming enthusiasm at a time when Disney’s theme parks and box office segments have been crushed by covid.

As Disney continues to work toward a post-pandemic recovery, its diversified portfolio will be key. In addition to theme parks, Disney is a viable player in the digital streaming space through Disney Plus and has numerous other television, studio and production networks, including ESPN. Disney continues to be a leading company in the film and retail industries through its consumer products and merchandise licensing.

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Despite the diversity of its business, DIS’s stock has fallen significantly more than the broader market over the past year. Wall Street will monitor developments in three main areas: Disney Media & Entertainment Distribution (DMED), Parks-Experiences and consumer products.

overview

The majority of Disney’s revenue comes from its DMED segment, which includes theatrical and music distribution, domestic and international channels, and 50% of equity investments in A+E Television Networks’ streaming services, Disney+, Disney+ Hotstar, ESPN+, Hulu and Star+ DTC, Content Sales/Licensing film and television to third parties and subscription video-on-demand services.

Disney’s DMED segment generates approximately 75% of total revenues. In the most recent quarter, DMED segment revenues increased 11% year-over-year to $14 billion. This helped the company achieve total revenue of $21.50 billion, an increase of 26% compared to the third quarter of 2021.

DIS raised its fiscal third-quarter earnings expectations by 16% to $1.09 per share, an impressive 36% increase from $0.80 a year earlier. The next day, DIS shares rose 8%, but began to decline throughout the quarter as inflation concerns weighed on their shares.

Investors will be hoping that another strong earnings beat in the company’s fiscal fourth quarter release will help the stock rise again and spark another, more sustained rally. Wall Street will also take an intuitive look at the company’s guidance and prospects as we move away from the peak entertainment and tourism seasons that boost the company’s parks and attractions revenues.

Fiscal outlook for the fourth quarter

The Zacks Consensus Estimate for Disney’s fiscal fourth-quarter earnings is $0.57 per share, which would represent growth of 54% from the fourth quarter of 2021. Sales are expected to grow 14% to $21.11 billion. This appears to reflect the company’s process of adapting to difficult operating conditions.

However, earnings estimates for the period are significantly lower from $0.85 at the beginning of the quarter. DIS earnings are expected to grow 66% year-over-year and another 32% in FY23 at $5.03 per share. Revenue is also expected to grow, with sales rising 24% this year and another 10% in FY23 to $92.67 billion. It should be noted that revenues this year and FY23 will exceed Disney’s pre-pandemic levels, with 2019 sales expected to be $75.12 billion.

Performance and pricing

Year-to-date, DIS is down -36%, underperforming the S&P 500 Index -22% and roughly matching the Media Conglomerates Market’s -33% performance with notable competitors Liberty Media FWONK and Paramount Global PARA.

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DIS has continued to grow 111% over the past decade, surpassing its Zacks sub-industry +18%. Disney has clearly demonstrated its leadership in the industry over the years, and investors are hoping its continued dominance will help the stock rebound. However, it is worth noting that Disney Plus is facing increasing competition from Netflix NFLX.

After hitting a 52-week high of $179.25 last November, DIS is currently trading at just under $100 per share. At current levels, DIS has a P/E of 20.1X. This is less than 30.1X in the comparison group. Moreover, DIS is trading at a significant discount to its decade high of 134.4X and close to its median price of 19.5X.

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Disney’s price relative to sales also looks attractive again. After rising above the broader market’s P/S during the pandemic, the chart above shows that DIS’s P/S of 2.2X has returned well below the benchmark’s 3.4X. In the past, investors have paid a very reasonable price for every dollar of company sales, and it’s worth seeing again.

Bottom line

DIS is currently a Zacks Rank #3 (Hold) and its Media Conglomerates industry is in the top 26% of 250+ Zacks industries. Despite the economic downturn, Disney’s revenues will exceed pre-pandemic levels. Patient investors could be rewarded for holding DIS as it is trading attractively compared to its past. Additionally, the Zacks Average Price Target suggests an upside of 43% from current levels.

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