Disney Stock Has a Lot to Prove This Week

Key Points

• Analysts see Disney reporting a small decline in revenue and a modest increase in profitability when it reports fiscal third-quarter results before Wednesday's market open.
• The stock that was the year's top Dow performer earlier this year is now trading lower in 2024.
• Disney may be saving some promising announcements for the D23 fan event scheduled later in the week.
• 10 stocks we like better than Walt Disney

Momentum is heading lower ahead of the entertainment leader's critical update on Wednesday.

It didn't take long for Walt Disney to go from being the belle of the ball to seeing its gold carriage turn into a pumpkin. Shares of Disney, which were trading 38% higher in 2024 at its March peak, are now trading lower year to date. Disney needs a catalyst to get back on track, and it could happen as soon as this week.

The company reports its latest financial results this week on Wednesday. There's a lot riding on what it has to say about its fiscal third quarter that ended in June and what it sees happening in the near term.

There's also a big fan event happening later in the week. Disney is expected to announce upcoming theme-park projects, theatrical releases, and shows. It's time for the company to turn today's pumpkin into a fairy-tale ending.

Past performance is not indicative of future results.

Getting back on track

Disney began the 2024 calendar year with a bang. It packed plenty of applause-worthy announcements into the fiscal first quarter it revealed in early February. Here are just some of the bigger takeaways that sent the shares skyward.

• Disney revealed that annualized cost savings by the end of this fiscal year would “exceed” $7.5 billion. (They were $5.5 billion a year earlier.)
• Historically a dud with its video gaming efforts, the company made a $1.5 billion investment in Fortnite developer Epic Games, with new Disney-themed releases in the works.
• The board announced a $3 billion buyback. This is the media-giant's first share-repurchase authorization since 2018.
• It boosted its semiannual dividend by 50%, just weeks after paying out its first post-pandemic distribution.
• Disney announced that a Moana series it was working on as a Disney+ series would be upgraded to a theatrical release. It will hit theaters during the seasonally potent Thanksgiving holiday this year.
• It also said that ESPN would be teaming up with two other sports programming juggernauts to roll out a sports-streaming bundle.
• Taylor Swift's record-breaking concert film will be coming exclusively to Disney+ in March.

There was a good reason for Disney to roll out a hit parade in February because activist investors were trying to get into the Disney boardroom. A proxy battle that Disney couldn't afford to lose was about to go down at its annual shareholder meeting in early April, so it had to do anything it could to juice up both its share price and investor enthusiasm.

Disney won the proxy battle, but did it lose the war? The downside to pushing forward a lot of exciting developments is that the subsequent fiscal second quarter in early May would be a disappointment. Now it's August and time to see if expectations are so low that even a modest report this week can get the stock moving higher again.

As the mouse earns

Expectations for Wednesday morning's financial update aren't high. Analysts are bracing for $21.1 billion in revenue for the fiscal third quarter, a 5% decline from where it was a year earlier. Those same Wall Street pros see a profit of $1.09 a share — an increase of 6% — but the trend has been problematic.

Analysts were holding for a fiscal-third-quarter profit of $1.27 a share just before announcing its second-quarter performance three months ago. Even a week ago, the market was holding out for a profit of $1.18 a share.

What's eating at Disney's media powerhouse? This should be a great time for the House of Mouse. It has the two biggest movies of the summer — Inside Out 2 and Deadpool vs. Wolverine — playing in theaters, crushing the narrative that its movie studio is out of touch with what consumers want.

It's summer, typically a strong period for its world-leading gated attractions. With life continuing to return to pre-pandemic norms, advertisers should be boosting Disney's legacy media-networks business, even as its streaming business turns the corner of profitability.

Why are projections so low for the current quarter? Let's start at the multiplex. Inside Out 2 is officially the highest-grossing theatrical release worldwide over the past year, but it opened in mid-June. It won't move the needle much for the quarter ending June, saving most of its victory laps for future reporting periods. Last month's Marvel blockbuster naturally came out after the quarter came to a close.

Disney already warned that rising labor costs at its domestic theme parks and challenging year-over-over comparisons to the milestone celebrations at Disney World and Disneyland would eat both ends of that segment's income statement. Disney+ surprised investors with an earlier-than-expected operating profit for its streaming business in the second quarter but expects a dip back to the red before returning to profitability for keeps in the fiscal fourth quarter it will announce in early November.

In short, Wednesday is going to be more about what Disney says about the future than what it says about its springtime performance. It might not have as much to say about a potentially rosy future as it did back in February.

The D23 fan event will take place in California over the weekend, and Disney is likely saving any major announcements about theme-park expansions and content releases for that widely watched conference. There's a lot that the media-stock bellwether can do this week to resume its winning ways, even with the new trading week already off to a rough start.

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Originally Posted August 5, 2024 – Disney Stock Has a Lot to Prove This Week