Should you buy Disney stock after Thursday’s earnings report?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on May 18, 2021
Updated: May 21, 2021
  • Shares of Disney stock have pulled back more than 2.5% after Thursday’s fiscal second-quarter results
  • Experienced a decline in revenue from streaming video while the parks & resorts business continues to struggle
  • The CDC’s new guidance on wearing masks, this could be the perfect opportunity to buy

Walt Disney (NYSE:DIS) reported its fiscal second-quarter results last Thursday, which missed analyst expectations on revenue. The company’s top line of $15.61 billion (£11 billion) was slightly lower than Wall Street’s estimate of $15.85 billion. On the other hand, earnings per share came in at $0.79 beating the average analyst estimate of $0.32. 

Disney fundamentals are nothing to worry about

Disney’s revenue miss was caused by a significant slowdown in the growth of subscriber numbers for its Disney+ streaming service. However, the company remains optimistic that it will achieve its goal of 240 million to 260 million Disney+ subscribers by 2024.

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The coronavirus pandemic also continued to affect Disney’s parks and resorts business due to restrictions placed on public attendance. But this could change soon after the Center for Disease Control and Protection (CDC) said that those fully vaccinated can mingle in public places without wearing masks. Disney CEO Bob Chapek even commented in the company’s conference call that the removal of mask mandates will “make for an even more pleasant experience.”

There is reason to believe that easing of mask restrictions will support pent-up demand for park visits. Recent developments are favorable and certainly moving in the right direction. Specifically, Disney World in Florida confirmed masks are now optional in outdoor areas and pool decks. Disney’s property in California, Disneyland, said on Monday its mask policy will “be evaluated.”

Technical analysis: DIS looks poised for a rebound

Source: Tradingview.com

Technically, shares of Disney appear to have pulled back to the 76.40% fib level since March 8 after ending the February-March rally. The Fibonacci Retracement levels (fib levels) are price action points drawn between the beginning and the end of a bull-run or a bearish run. They show how much the stock price has moved relative to the previous rally, or decline. They also indicate points where investors can target potential profits. It has since slipped to the oversold levels of the 14-hour RSI in the 60-min chart. This creates an exciting opportunity to buy the stock before the next rebound.

Investors can find bullish profit opportunities at around 61.80%, 38.20%, and 50% fib levels at $175, $180, and $185, respectively. The 23.60% and 0.00% fib levels at $191 and $200 are ideal targets for long-term profits. 

Bottom line: you can Buy DIS stock 

From a valuation perspective, Disney is set to return to profitability on a trailing 12-month basis this year. The company has a forward P/E ratio of 34.21. This implies an expectation of significant earnings growth. The PEG ratio of 1.61 also suggests that this growth is expected to continue for the next five years. The company’s Disney+ numbers are expected to soar in the coming quarters due to its investment in Superhero and Sci-Fi Tv programs. This will support long-term growth.

With these factors in mind, Disney looks like an exciting stock for investors. The latest pullback is a perfect opportunity to invest in a high-quality company, which also has bounds of growth on the horizon. Both technicals and fundamentals suggest that now would be the time to buy.

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