Bull or Bust

a bull's view

February 9, 2016

moneyIt’s earnings day! Well, really just about every day is earnings day during earnings season, but today is the day I’ve been waiting for personally.

Today we hear from several of my favorite companies including: CVS [stock_quote symbol=cvs], Coca-Cola [stock_quote symbol=ko], Goodyear Tire [stock_quote symbol=gt], Viacom [stock_quote symbol=viab] and, of course, our beloved Walt Disney [stock_quote symbol=dis]. A big day full of excitement, a few laughs, probably more tears than anything, but entertaining at the very least.

So let’s just punch the elephant in the room and get it over with: the Burbank, California media giant Walt Disney is scheduled to report its fiscal first quarter earnings after the closing bell this afternoon. Here’s what you need to know: the analyst God’s are predicting $1.45 EPS compared with $1.27 reported a year ago. I believe I stated this as $1.46 in another post, but I’m seeing both. Analysts also expect revenue of $14.76 billion, compared to $13.39 billion reported a year ago. The conference call is scheduled for 5 PM EST.

Currently Disney trades at a P/E ratio of 18.8x forward earnings. If my calculations are correct and $1.45 EPS is reported for the past quarter AND the sentiment is positive looking forward AND the tone towards ESPN turns positive then I estimate the stock to be worth roughly $109.

The number one issue on the minds of all Disney investors is the viability of ESPN and the future of cable television. ESPN and the fear associated with cord-cutters is simply sucking the life out of Disney. If not for this dark cloud hovering over Mickey all the damn time the stock would be much higher. Poor Mickey just cannot escape the doomsday scenarios for pay-tv and whether or not this is the beginning of the end for ESPN as we know it. Since an August revelation that earnings growth was somewhat slower than the company previously predicted, analysts have been debating how much cord-cutting is really hitting the sports giant; how bad are higher long-term fixed costs; and when or whether it should launch a spectacular online, subscriber-based offering of some kind.

ESPN and the concerns surrounding its future, I believe, is directly responsible for the 25% drop in Disney’s stock price since November (and my loss of a great deal of money). Disney moving forward, and especially today with the conference call, must change the tone related to ESPN. Today’s conference call is a prime opportunity to do just that and I am anxious to hear what is said. For the love of Pete, please, change the damn tone!

Star Wars merchandise and the Shanghai Park are other Disney investor concerns. The much anticipated Shanghai Park is scheduled to open on June 16, 2016, at a cost of $5.5 billion and investors are eager to see what effect, if any, revenue generated from the new park will have on the bottom line.

Disney is a great company and there is no denying that. It has been hammered lately and reached a new 52-week low yesterday when it hit $89.51. I was watching it closely and felt $90 was a great entry point for any long-term investor (like me). The direction of Disney stock in the next 24 hours will be directly related to ESPN and what, exactly, is said during the conference call. If the market likes what it hears I definitely see the price bouncing higher. However, if the tone of ESPN remains negative we might just see a bloodbath regardless.

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