Don’t Expect Fireworks During Disney’s Q4 Report; Fox Euphoria Will Be Focus

DIS Weekly 2015-2018

TedsWoodworking Plans and Projects

* Reports Thursday, November 8, after the close
* Revenue Expectation: $13.72B
* EPS: $1.33

It’s an exciting time for Walt Disney Co. (NYSE:) and its investors. After years of strategic moves, this global entertainment giant is poised to take on internet disruptors such as Netflix (NASDAQ:) and Amazon (NASDAQ:) who are attracting viewers and depriving Disney of advertising dollars.

After Disney’s $71-billion takeover of 21st Century Fox’s (NASDAQ:) entertainment assets—a deal which is scheduled to close in the first half of 2019—the company is set to become a major player in the streaming video market.

With the Fox deal, Disney is doubling down on movies and TV. Among the assets Disney is acquiring: Fox’s FX cable channel, the National Geographic network, and the film and TV studios that produced “Avatar,” “X-Men” and “The Simpsons.” The Fox purchase will also significantly boost Disney’s stake in Hulu, the online service it jointly owns with Comcast (NASDAQ:) and AT&T (NYSE:), to 60%. As well, yet another Disney-branded streaming service focused on children and families is scheduled to launch later next year.

It appears as if the company has started to fire on all cylinders. Just five months after its launch, Disney’s ESPN+ sports streaming service has already surpassed 1 million subscribers. The service, which costs $5 per month, features thousands of live games, on-demand sports content as well as some exclusive content, designed to augment its struggling ESPN network.

According to Chief Executive Officer Robert Iger:

“We’ve always believed we have the brands and content to be extremely competitive and to thrive alongside Netflix, Amazon and anyone else in the market.”

Time to Buy Disney Shares?

Disney’s stock has broken out of the bearish swoon that preceded the Fox deal, which was announced in mid-June.

Shares have surged, up 15% during the past six months. They closed yesterday at $117.05, just 2% off the stock’s 52-week high of 119.69. Indeed, the stock performed extremely well in October, even as major tech and other shares were being sold off; Disney has also outperformed all the major US indices.

We believe this momentum will continue as the company moves to combine its newly acquired media assets with its existing programming. The synergy will create a powerful video-streaming service robust enough to challenge Netflix’s dominance in this arena.

The success of Disney’s video-streaming unit is crucial. Its biggest revenue-generating segment, media and networks, has been going through a rough patch, losing viewers and revenue to internet competitors and disruptors.

In the short-run, the Disney story will be all about execution after the Fox deal and how quickly the company moves on its plans. Investors will be eagerly waiting for details when the company reports the results of its fiscal fourth-quarter and full-year fiscal 2018 later today. According to analysts’ consensus estimates, Disney will report revenue of $13.72 billion, up 7.4% year-over-year, and earnings per share of $1.33, up 24% compared to the last year.

Bottom line

We don’t expect any fireworks during Disney’s earnings report. However, it will be important to know how the company plans to integrate Fox assets and what timeline it has for launching its full-scale video-streaming service. Though shares are trading close to a high for the stock, if investors are pleased with Disney’s forward guidance, shares could certainly move higher from here.

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