The Walt Disney Company (Ticker Symbol: DIS) reported weaker than expected earnings this week. The multinational mass media and entertainment conglomerate reported a huge earnings miss of $1.35 per share vs. Wall Street analysts’ estimates of $1.75 per share. Additionally, Disney reported revenue at $20.25 billion vs. Wall Street analysts’ estimates of $21.47 billion. The company noted that the earnings miss was due to its investments in streaming services ESPN+, Disney+, Hulu, and its $71 billion acquisition of Fox’s entertainment assets.
Disney’s new streaming service, Disney+, which will cost $6.99 per month or $69.99 per year, will have content from Disney, Pixar, Marvel, Star Wars, and Fox. On the conference call, the company announced that it would be offering its domestic consumers a package of Disney+, ESPN+ and an ad-supported Hulu subscription which will cost $12.99 per month. The new streaming services are both set to launch in November of this year. Having a mainstream sports streaming service in ESPN+ is one thing that will differentiate Disney’s service from Netflix and Amazon Prime.
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 in the second quarter of 2018. 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 of 2018. Disney took a hard turn in the fourth quarter of 2018, forming a bearish divergence pattern, where the stock makes a higher high in price but the Relative Strength Index makes a lower high, as indicated on the chart by the red lines. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Disney’s case.
Disney’s stock pulled back almost 20% from the highs of the year and put in its first oversold condition in the Relative Strength Index in over 15 months, indicated by the purple 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. The stock gapped up on the initial news of the announcement of Disney+. The stock rallied and traded to an all-time high of $147.15 on July 29, 2019. Currently, Disney’s stock is finding some price support at its 100-day Moving Average.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 14 analysts offering 12-month price targets, the average price target for Disney’s stock is $155.73. 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 $134.60.
Disney continues to impress its shareholders month after month in 2019. With the announcement of Disney+ and the roaring success of its box office blockbusters, Disney seems to be doing the right thing for its stockholders. Investors in Disney should look to their next earnings release on November 10th for fresh news within the company.