Disney Stock Has Been No Fairy Tale

Disney was on the receiving end of two upgrades this week. Bank of Montreal (BMO) upgraded Disney to outperform and raised their price target to $140 from $114 which is almost a 20% move higher.  Cowen also upgraded Disney to outperform from market perform and raised its price target to $131 from $102 indicating a 28% move higher.  The upgrades come just before Disney’s investor day on Thursday.

Disney is expected to give details about some exciting new changes to its strategy.  The company is supposed to speak on its new streaming service, Disney+, which will compete with other online streaming services like Netflix and Hulu.  Disney will pull all of its movies from Netflix, including its widely popular Pixar films. This comes on the heels of its new ESPN video streaming service started in 2018.

The start of 2018 was not the most eventful for shares of Disney’s stock.  After nearly a 15% pullback to start the year, Disney began to find some support just under the $100 price level.  The stock began to firm up, led by strong earnings and positive guidance.  Disney then broke out above its 2018 downtrend that began in the first quarter of 2018.  The stock then found price support just above the 100 and 200-day Moving Averages and continued to rally in the second and third quarters on 2018.  Disney took a hard turn in the fourth quarter of 2018, pulling back almost 20% from the highs of the year and putting in its first oversold condition in the Relative Strength Index in over 15 months. (indicated by the red circles on the charts)  Disney’s stock rebounded very well early in the first quarter of 2019 and notched in a V-shaped reversal in March.  Currently, Disney’s stock is sitting just over 3% from its all-time high.

The longer-term story of Disney shows quite a different picture.  Disney spent over a decade stuck in a trading range between the $15.00 and the $45.00 price levels.  This stock finally saw some constructive price action once it broke through that channel in July of 2012.  The stock began a 4-year long move higher, rallying over 175% and ticking an all-time high on August 4th, 2015 at the price of $122.08.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 13 analysts offering 12-month price targets, the average price target for Disney’s stock is $132.36. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $117.16.

Disney has a variety of new products to introduce into its earnings pipeline. The company is also waiting for the release of the digitally remastered “Lion King” movie which is expected to break box office records.   Between ESPN’s streaming service, Disney+, and the new movies within its pipeline, Disney investors have a lot to look forward to in the coming months.


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