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Will Walt Disney Co Stock Fall Below $100 After The Earnings?

Walt Disney Co (NYSE:DIS) stock is back above the $100 level ahead of earnings. Can Disney stock continue its uptrend?


Shares of Bob Iger led entertainment conglomerate Walt Disney Co (NYSE:DIS) are seeing some late action ahead of its fiscal fourth-quarter earnings, which the company is scheduled to report tomorrow, after the closing bell. Disney stock is presently trading above the $100 level after trading in the sub $90 level for the majority of last three months since the third quarter earnings. This brings us to the question, is the market sentiment around Disney stock really changing? Can earnings help DIS stock continue its uptrend? Or, will Disney stock fall to sub $90 level once more? Let's take a closer look.

Is the sentiment really changing?

Shares of Disney are on an uptrend recently more because of the reported talks with Twenty First Century Fox (NASDAQ:FOX) to buy a portion of its assets. Jefferies analysts suggest that the reported deal could be worth $40 billion. Though this has given a lift to the DIS stock, the commentary on ESPN will be the focus of the earnings and will be the key driver of the post-earnings movement of the stock, which has been the norm over the past few quarters. ESPN continues to lose subscribers having lost 13 million subscribers in the past few years. According to Nielsen, ESPN lost another 480,000 subscribers in the month of October. ESPN worries have been a cause of concern for a while but of late investors are diverted to a reported purchase of Fox assets which could give a boost to Disney's struggling cable networks business hit hard by cord cutting. This deal could potentially add value to yet to be launched streaming service of the House of Mouse. However, the ESPN issues have no concrete solution in sight and could come back to haunt DIS stock again.

Though some analysts have cheered the Disney- FOX deal which has given a lift to Disney stock, it has to deliver a strong performance in its earnings on Thursday if the stock has to maintain the recently gained momentum. Coming to analyst estimates, there aren't many positives for the Media and entertainment giant. Wall Street expects Walt Disney to report $1.14 in non-GAAP EPS, translating to a meager 3.6% YoY growth, just 4 cents higher than last year same quarter earnings. On the revenue front, top-line growth is set to be tepid. Analysts expect the company to report revenues of $13.27 billion, just 1% higher than what the company had reported in the year-ago same quarter. The earnings whisper number of $1.16 per share suggests an earnings beat but the main focus would be on the revenues. The Bob Iger led company has missed the revenue estimates consecutively in the last four quarters and a repeat of that doesn't bode well for Disney stock.

The operating income of the House of Mouse has come under pressure of late. In the last quarter, almost all major business segments of the company saw a significant double-digit decline except the bright spot of last quarter the Parks and Resorts segment and that of Consumer Products & Interactive Media segment. In the latest earnings too, investors would be closely watching this metric. The Parks and Resorts segment in all likelihood would be the best performer but hurricane-related closures and cancellations could have some adverse effect. With this quarter, the Shanghai park which has been the growth driver of the Parks segment will have last year comparables to beat as it has been more than a year now since its opening.

Will Disney stock break out of its downtrend?

The investor sentiment turned much better in the run-up to the earnings boosted further by the Fox deal as seen in the image below. At the same time, the Disney stock technical chart also has some bullish signals. DIS stock saw a bullish crossover with its 50-day simple moving average (SMA) for the first time since the last quarter earnings recently and the Moving Average Convergence Divergence (MACD) indicator also turned bullish yesterday. Disney stock presently faces its next level of resistance at its 100-day SMA which is just a few cents away. The technical chart has some bullish signal and investor sentiment looks more upbeat ahead of earnings. However, the Bob Iger led company needs to deliver a strong performance in its earnings release tomorrow. All this will result in nothing if the House of Mouse disappoints tomorrow. There is a high possibility of Disney falling back to sub $90 level in case of a lackluster earnings performance. The media giant's fiscal 2018 movie release slate is really strong and does make a cause for it but investors would be better of to wait till the earnings before making a move.

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