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Michael Fowlkes' Analyst Insights

InvestorsObserver
Options and ETF Analyst Writer
Michael Fowlkes
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February 6, 2017 - Walt Disney Reports Q1 Earnings February 7

What's Happening

Media and entertainment mogul Walt Disney (DIS) is scheduled to report its fiscal first-quarter results February 7. The company will post its quarterly numbers after the market close, with the consensus calling for earnings of $1.47 per share, down from $1.63 during the same period last year. The stock has risen 4.4% since the beginning of the year.

Technical Analysis

DIS was recently trading at $110.79, down $1.20 from its 12-month high and $24.54 above its 12-month low. Technical indicators for DIS are bullish and the stock is in a strong upward trend. The stock has recent support above $106.50 and has recent resistance below $112.00. Of the 24 analysts who cover the stock, 10 rate it a “strong buy”, three rate it a “buy”, nine rate it a “hold”, and two rate it a “strong sell”. The stock receives S&P Capital IQ’s 4 STARS “Buy” ranking.

Analyst's Thoughts

DIS shares have been in a sharp upward trend since its fiscal fourth-quarter report back in November, despite posting disappointing numbers on both the top and bottom lines. During the last quarter conference call, the company’s CEO, Bob Iger, said that he was bullish on the future of the company’s sports cable channel ESPN. ESPN is very important to the company, and will be a key to how the stock performs following the quarterly report. For years, analysts believed that ESPN was somewhat immune from cable-cutting due to the zero shelf life of live sports, but the company has been losing subscribers, and Wall Street will be hard on the company if ESPN shows any signs of weakness in the most recent quarter.

Following the recent election, DIS shares have been very strong in sympathy with the overall market, with traders taking a bullish approach to President Trump’s impact on the overall economy, and in turn consumer discretionary companies such as Disney. The stock’s P/E is sitting at 19.3, and the year over year earnings drop has already been priced into the stock, so as long as the quarterly numbers are in-line or better than expected the stock should trend higher. However, disappointing numbers for ESPN, or a significant earnings miss could quickly erase some of the stock’s recent gains. Current shareholders may want to consider locking in some profits just in case the numbers disappoint.

Stock Only Trade

If you're looking to establish a long stock position in DIS, consider buying the stock under $110.75. Sell if it falls below $99.50 or take profits if it gets to $127.25.

Bullish Trade

If you want to set up a bullish hedged trade on DIS, consider an April 92.50/97.50 bull-put credit spread for a 20-cent credit. That's a potential 4.2% return (19.8% annualized*) and the stock would have to fall 11.8% to cause a problem.

Bearish Trade

If you want to take a bearish stance on DIS at this time, consider a June 125/130 bear-call credit spread for a 35-cent credit. That's a potential 7.5% return (20.7% annualized*) and the stock would have to rise 13.1% to cause a problem.

Covered Call Trade

If you like the stock, but wish to lower your cost basis on a new position, you may want to consider a June $110.00 covered call. Buy DIS shares (typically 100 shares, scale as appropriate), while selling the June $110.00 call for a debit of $105.40 per share. The trade has a target assigned return of 4.4%, and a target annualized return of 12.1% (for comparison purposes only).

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