Don't Expect Disney's Earnings Growth to Slow for Long
Disney is scheduled to release its quarterly earnings report tomorrow, and having sent the stock to new all-time highs back in May, investors have recently had to face the prospect of another box-office bomb from a movie they had hoped would become the company's latest blockbuster. Yet even if Disney's earnings growth slows as a result, the long-term prospects for the media giant and member of the Dow Jones Industrials continue to look bright.
Disney needs no introduction for its well-known movie and theme park businesses, but a surprising number of people still don't realize that major media properties ABC and ESPN have the Disney name behind them. As new distribution networks like streaming video have evolved, the value of entertainment content has risen dramatically, and Disney's strong stable of content-production and distribution assets has gained the attention of companies in every facet of the entertainment business. Let's take an early look at what's been happening with Disney over the past quarter and what we're likely to see in its quarterly report.
Stats on Disney
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
Are Disney earnings doomed to slow?
In recent months, analysts have had less optimistic viewpoints on near-term Disney earnings, reining back their June-quarter estimates by a nickel per share. But they've raised their views for the fiscal 2014 year by nearly the same amount, helping push the stock up about 5% since early May.
One big problem with Disney is that investors have come to have almost ridiculously high expectations of the company. With Iron Man 3 having hit a $1.2 billion global box-office jackpot, all but guaranteeing it the top spot among the year's most lucrative films, other companies would be riding high on such a wave of success. Yet the relative failure of The Lone Ranger following the Marvel film's wild success has received huge amounts of attention, even though the losses could end up being minimal on a global basis. Investors are turning their attention to the coming release of Planes, which Disney's Pixar division hopes will have as much success as its Cars franchise has had over the past decade.
But the company also has seen a competitive push lately against its banner ESPN sports network. Both Comcast's NBCUniversal and 21st Century Fox are putting pressure on ESPN, with NBC Sports Network having recently taken its new name and Fox planning to introduce FOX Sports 1 later this month. Nevertheless, Disney has made moves elsewhere to bolster its profitability. For instance, its decision to raise theme park prices between 5% and 10% drew the ire of cost-conscious vacationers but will still likely raise substantial revenue.
One key element of Disney's future strategy involves content distribution. Disney, Fox, and Comcast all own Hulu, and after initial attempts to sell the streaming service, the three owners decided to invest $750 million more as they try to make Hulu relevant in a world in which Netflix is increasingly taking steps to secure content -- including Disney's -- for its own service.
In tomorrow's Disney earnings report, watch for the company to detail the latest damage from The Lone Ranger. After that's out of the way, though, Disney appears poised to resume its upward growth trajectory and justify the enthusiasm about its stock.
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The article Don't Expect Disney's Earnings Growth to Slow for Long originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Netflix and Walt Disney. The Motley Fool owns shares of Netflix and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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