Disney Results Likely Aided by Avengers Movie and Star Wars Lands

(Bloomberg) -- Consistent box office hits for Walt Disney Co. offer a nice set-up for third-quarter earnings, which are scheduled to come after markets close Tuesday.

Wall Street is looking for a strong quarter as Cowen said the company has “crushed it in the box office and we are barely halfway through the year with Frozen and Star Wars” also slated to come later this year. According to analysts surveyed by Bloomberg, Disney is projected to generate $21.4 billion in revenue for the period.

Gerber Kawasaki Inc.'s Nick Licouris said he's expecting Disney to have “fairly good numbers across the board,” with a focus on how the newest addition of Star Wars lands in Florida and California has contributed to the Parks division. He's also “expecting a big number from the studios and [is] interested to see their forecasts.” The Santa Monica, Calif.-based wealth management firm has Disney among its top three holdings, with a recent 13F filing listing more than 152,000 shares valued at almost $22 million.

Third-quarter earnings may prove to “be a difficult quarter to analyze” though, as Evercore says it will be the first report to fully reflect results of 21st Century Fox Inc. assets that were acquired. Whether historical pro forma results are offered or not, analyst Vijay Jayant expects Disney to attribute these Fox units to applicable segments.

Sequential declines for the cable and pay-TV industry are likely already baked in for investors, who have now turned their focus to the November debut of the company's streaming platform Disney+.

While ABC Entertainment chief Karey Burke recently touted the prospects of broadcast television, investors will watch for any updates on Disney+, in addition to how Hulu is faring. Disney stock has risen 27% this year, outperforming a 14% climb in the S&P 500.

Options in the entertainment giant set to expire on Friday show an implied earnings day move of 4.2%, more than double the average move of 1.9% over the last eight reports when shares dropped 6 times and only rallied twice. Call options are outweighing put options by a rate of 1.7-to-1 which on the surface is a bullish indicator. Only 6% of total open interest is set to expire at the end of the week but implied volatility is on the high side at 59% versus a three-month average of 25.

What Bloomberg Intelligence Says
Despite all of the positive momentum generated by Disney's aggressive foray into the direct-to-consumer business with the Nov. 12 debut of its $7-a-month Disney+ service, it will require further investment and depress the segment's fiscal 3Q operating income by $460 million. Losses will expand because of a consolidation of Hulu and a ramp-up in ESPN+ and Disney+ spending. Disney should post strong 3Q theatrical results, given the resounding success of “Avengers: Endgame”.
-- Geetha Ranganathan, BI senior media analyst
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The Numbers

3Q adjusted EPS estimate $1.75 (range $1.31 to $1.94) (Bloomberg data)
3Q revenue estimate $21.44 billion (range $20.11 billion to $22.46 billion) (BD)

Data

22 buys, 9 holds, 1 sell; avg. PT $155.19
Implied 1-day share move following earnings: 4.4%
Shares fell after 7 of prior 12 earnings announcements
Adjusted EPS beat estimates in 9 of past 12 quarters
Semi-annual dividend BDVD est. 92c per share, year ago reported 88c; next declaration date Nov. 27, 2019