(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of DIS and NFLX.)
Walt Disney Co. (DIS ) shares may be poised to rise by about 10% over the next several weeks, from its current price around $101.50, back to about $111, based on an analysis of the chart. Shares of Disney have underperformed the broader S&P 500 over the past year, falling by nearly 7.5%, versus the S&P 500, which has climbed by almost 13.75%.
The company's struggles started about three years ago, as investors worries and concerns over subscriber losses at ESPN took center stage. The company has tried to refocus investors on a newer story, one of a company focusing on a future in content and streaming media, following in the footsteps of Netflix Inc. (NFLX). However, questions about its current attempt to acquire assets from Twenty-First Century Fox Inc. (FOX) to bolster its content library have proven to add a new layer of concern.
The stock had traded in a well-defined pattern since August 2015, when shares topped out around $122. Since that time the stock has made a series of higher lows, and lower highs, creating a more extended consolidation pattern called a symmetrical triangle. With the stock currently trading at the lower end of the triangle, it appears to be set to rise back to the upper end of that triangle, around $111 a share.
It is not clear at this point just how much longer shares will continue to trade within the longer-term triangle. Based on the multiyear uptrend from the middle of 2011 to the middle of 2015, perhaps four years. With the current consolidation period around three years old, the back-and-forth trading may last up to another year. It would take shares rising above $115 to trigger a real long-term breakout.
Analysts See Stock Rising
Analysts are bullish on shares of Disney with an average price target on the stock of about $119.50, nearly 17.75% higher than the current stock price. Of the 27 analysts covering shares of the stock, about 59% rate shares a buy or outperform, while 35% rate shares a hold.
Not Cheap Compared to Peers
However, one problem Disney's stock faces are that its earnings are seen slowing from 24.25% in 2018 to 9.5% in 2019 and 6.3% in 2020. Another major hurdle for Disney is its one-year forward earnings multiple of about 13 times 2019 earnings estimates of $7.75 per share, which isn't cheap when compared to some other media peers such as CBS Corp. (CBS), trading at only 8.7, and Comcast Corp. (CMCSA), trading at just 11.
The future direction for Disney’s stock and how long shares take to begin rising again will depend on the company's ability to roll out its streaming media product, as well as its ability to reignite growth.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.