Disney (DIS) reports their fiscal Q4 tonight after the close. The options market is implying about a 3% one move tomorrow in either direction, which is a tad rich to the average move over the last 4 quarters, and shy of the 10 year average of about 3.4%. The company is expected to report eps that will be negative year over year, the first such instance since Q1 2013, resulting from weak results in their cable networks division which saw tough competition in the quarter from the Olympics, weak ratings for ESPN’s SportsCenter, MLB & NFL. Fiscal Q1 will face a difficult comparison with the expected second yoy eps decline as last year the company had the benefit of the reboot of the Star Wars franchise.
These concerns and headwinds are fairly well known by now and with the stock down 10% on the year, down about 22% from its all time highs made in August 2015, a weak quarter and guide may be “in” the stock, which trades at 16.4x 2016 eps, below a market multiple for the first time in a few years.
DIS is not alone among prior consumer discretionary leaders who have fallen by the wayside in 2016, Nike (NKE) is down 18% ytd, Starbucks (SBUX) is down 9% and The Home Dept (HD) is down about 5%. Some would say that the rotation out of stocks like these into perceived laggards like Biotech, Pharma and Industrials is a fairly bullish sign for the potential for a broadening out to establish a new range above the prior highs. Yesterday we saw Biotech re-join the party, maybe consumer discretionary stocks have discounted the worst?
If DIS is able to print results and guidance that is better than expected, the stock is going straight to $100:
Taking a 5 year view, the stock has little overhead resistance above $100 until the we get to the uptrend from late 2011 near $115. Near term support at $90 is a sort of must hold as there is an air-pocket below to $80.
We will check back with some trade ideas into the print for those with existing positioning or a directional inclination.