Walt Disney Could Rally into Year’s End

Dow component Walt Disney Co. (DIS) reports fiscal Q4 2021 earnings after Wednesday’s closing bell, with analysts forecasting a profit of $0.51 per-share on $18.77 billion in revenue. If met, earnings-per-share (EPS) will mark a major turnaround from the $0.20 loss posted in the same quarter last year. The stock gained just 1% after beating Q3 estimates in August but the uptick failed, yielding mixed action at slightly lower levels into November.

Slowdown at Disney+

Theatrical releases are back on track despite lingering pandemic fears, with new Marvel titles booking excellent box office receipts. However, it was Disney+ subscriptions that powered both the 2019 breakout and 2020’s solid 26% return. Growth in that venue has slowed dramatically, mostly due to the ‘pull-forward’ of new subscribers triggered by the pandemic. In turn, this has forced Disney to offer discounts and special offers that lower profit margins.

Barclays analyst Kannan Venkateshwar cited this headwind in his October downgrade, noting “We upgraded Disney to ‘Overweight’ in October 2018 prior to its first streaming investor day, when everything about its streaming business was conjecture. Since then, the rollout of Disney+ has been the most successful streaming launch ever, which is remarkable given that the company achieved this with very little new content. This year however, Disney+ growth has slowed significantly despite launching new franchise titles, day and date movie releases, and Star+”.

Wall Street and Technical Outlook

Wall Street coverage has remained modestly bullish throughout 2021, now standing at an ‘Overweight’ rating based upon 21 ‘Buy’, 2 ‘Overweight’, and 7 ‘Hold’ recommendations. Price targets currently range from a low of $147 to a Street-high $263 while the stock is set to open Wednesday’s session more than $35 below the median $210 target. This placement indicates that lingering COVID concerns are weighing on investor sentiment.

Walt Disney broke out above 5-year resistance in 2019 and got crushed during March 2020’s pandemic decline, dropping to a 6-year low. The subsequent uptick reached the prior peak above 150 in November, yielding an immediate breakout that posted an all-time high at 203.02 in March 2021. A selloff into May ended below 170 while price action since that time has held within those boundaries. Accumulation is now rising after a successful test at range support, raising odds for a rapid advance into the mid-180s.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.