Disney turns weak on missing Q2 2017 rev. estimate

The stock of diversified media and entertainment company Walt Disney (NYSE: DIS) plunged about 6% to $109.05 last week, after the company reported fiscal 2017 second-quarter revenue that missed analysts’ estimates. The earnings, however, beat the Wall Street expectations by 9 cents.

Still, the market hammered the stock on concerns of weakness in Disney’s cable business. On the basis of facts provided underneath, we anticipate the weakness in the share price to persist in the short-term.

The Burbank, California-based company reported fiscal 2017 second-quarter net income of $2.39 billion, or $1.50 per share, on revenues of $13.34 billion.

The blockbuster movie “Beauty and the Beast”, which had collected revenue of about $1 billion, aided the company to beat the Wall Street earnings estimates of $1.41 per share. However, the company missed the Street’s revenue estimates of $13.45 billion.

Disney Movie Trailers

In the same period last year, Disney reported net income of $2.143 billion, or $1.30 per share, on revenues of $12.97 billion.

The second-quarter 2017 cash and cash equivalents declined to $3.80 billion, from $5.02 billion in the second-quarter last year.

Parks & Resorts division posted a 20% y-o-y increase in the operating income to $750 million in the quarter ended April 1, 2017. During the recent quarter, Entertainment segment recorded operating income of $656 million, up 21% from $542 million in the similar quarter last year.

Media Networks, the largest division of Walt Disney, reported a 3% decline in Q2 2017 operating income to $2.223 billion, from $2.299 billion in Q2 2016. However, the figures surpassed analysts’ consensus estimate of $2.20 billion.

Cable Networks, which is the largest business in the Media Networks division, reported a 3% decline in the operating income to $1.79 billion in Q2 2017, from $1.846 billion in Q2 2016. The reported figures failed to meet StreetAccount analysts’ estimate of $1.85 billion.

The decline in the operating income was mainly due to ESPN, which continues to remain a drag on the overall performance of the company. The Cable Networks division’s performance still looks decent only because of an increase in the operating income at Disney Channels and Freedom. This segment contributes nearly 55% to 60% of the overall operating income of the company. The lackluster performance of Media segment keeps the share stuck in mid-2015 levels. Thus, fundamentally, the stock would remain range bound with negative bias in the short-term.

The stock has broken the support at 112. That level is now expected to act as a major resistance. On the downside, next major support exists at 106. The MACD indicator is below the zero line. This indicates lack of buying support in the scrip. So, technically, the stock can be expected to test the next support level.

A trader can benefit from the forecast by investing in a low or below contract offered by a binary broker of choice. It is recommended to invest in low option or its equivalent when the stock trades at or above $110 in the NYSE. Additionally, in the best interest of trader, a date around May 23rd should be selected as the contract expiry date.