Walt Disney (DIS) has been one of the most popular stocks among Zacks.com visitors recently, so it may be a good idea to take a look at some factors that could impact the stock's near-term performance.
Shares of this entertainment company have returned -0.4% over the past month, which contrasts with a +3% change for the Zacks S&P 500 Composite Index. The Zacks Media Conglomerates industry, which Disney belongs to, has gained 1.4% in that same period.The big question here is, where is this stock headed in the near term?
While media reports or rumors of major changes in a company's business prospects usually influence the movement of that company's share price, leading to immediate price movements, there are always certain fundamental factors that ultimately drive a buy-and-hold decision.
Earnings forecast revision
At Zacks, we prioritize evaluating the changes in a company's earnings estimates over other factors because we believe the fair value of a stock is determined by the present value of its future earnings stream.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company's earnings forecast goes up, the fair value of its stock also goes up. And if a stock's fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, Disney is projected to post earnings of $1.11 per share, which would represent a +35.4% change from the same period last year. The Zacks Consensus Estimate has changed -0.3% over the past 30 days.
The consensus earnings estimate for the current fiscal year is $4.89, indicating a change of +30.1% year over year. Over the past 30 days, this estimate has changed +3.7%.
Looking at the coming fiscal year, the consensus earnings estimate is $5.14, representing a +5.2% change from what Disney was expected to report a year ago. Over the past month, estimates have changed -6.6%.
The Zacks Rank, our proprietary stock rating tool with a strong outside-audited track record, effectively harnesses the power of earnings estimate revisions to provide more certainty about near-term stock price direction. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings estimates, have earned Disney a Zacks Rank #3 (Hold).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Revenue Growth Forecast
Revenue growth is arguably the best indicator of a company's financial health, but if a company can't grow its revenue, then nothing happens. After all, it's nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it's important to know a company's revenue growth potential.
For Disney, the consensus revenue estimate for the current quarter is $22.52 billion, indicating a +6% change year-over-year. For the current and next fiscal years, estimates of $91.23 billion and $94.83 billion indicate changes of +2.6% and +4%, respectively.
Last reported results and surprise history
Disney reported revenue of $23.16 billion for its most recent quarter, up 3.7% from the same period a year ago. EPS for the quarter was $1.39, up from $1.03 a year ago.
Compared to the Zacks Consensus Estimate of $22.91 billion, reported revenues represented a surprise of +1.06%. EPS surprise was +15.83%.
The company has beaten consensus EPS estimates in each of the last four quarters, and revenue has surpassed consensus estimates two times during that period.
evaluation
No investment decision can be efficient without taking into account stock valuation. To predict the future price movement of a stock, it is important to determine whether the current price properly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S), Price to Cash Flow (P/CF) with its historical values helps in identifying whether the stock is fairly valued, overvalued or undervalued. Also, comparing a company with its peers based on these parameters gives a good idea of how reasonably priced its stock is.
The Zacks Value Style Score (part of the Zacks Style Scores system) pays close attention to both traditional and non-traditional valuation criteria to rate stocks from A to F (with An being better than B, B being better than C, etc.), which can be very helpful in identifying whether stocks are overvalued, fairly valued or temporarily undervalued.
Disney is rated a C in this regard, indicating that it is trading in line with its peers. Click here to see the values of some of the valuation metrics that drove this rating.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding Disney is worth paying attention to, however, its Zacks Rank #3 suggests that Disney is likely to perform in line with the overall market in the near term.
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The Walt Disney Company (DIS): Free Stock Analysis Report
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