Netflix Under Pressure Ahead of Tuesday Report

Netflix Inc. (NFLX) reports Q4 2020 earnings after Tuesday’s closing bell, with analysts looking for a profit of $1.41 per-share on $6.62 billion in revenue. If met, earnings-per-share (EPS) will mark a modest 8.4% profit increase, compared to the same quarter in 2020. Of course, all hell broke loose after that report, with a worldwide pandemic boosting subscriptions, especially in more resistant older demographics.

Netflix Growth Concerns

The stock posted an impressive 67% return in 2020 but hasn’t added a penny in the last six months and has lost 8% so far in 2021.  Rivals Walt Disney Co. (DIS) and Roku Inc. (ROKU) have ascended the leader board between then and now, with their rapidly-growing services attracting waves of Wall Street upgrades. On the flip side, growth concerns have plagued Netflix since July, with some analysts expecting 2021 to reveal all sorts of structural weaknesses.

That sentiment is far from universal, as evidenced by BMO Capital Market’s call to sell Disney. Analyst Daniel Salmon downgraded the stock to ‘Outperform’ in December, stating that Netflix “retakes the Top Pick mantle”. However, Needham’s Laura Martin is telling clients to sell NFLX and buy ROKU in a pairs trade that highlights a popular opposing view. She also expects DIS to have more subscribers within 18 to 24 months, given the service’s incredible ingrowth trajectory.

Wall Street and Technical Outlook

Wall Street consensus remains at a ‘Moderate Buy’ ahead of Tuesday’s confessional, based upon 19 ‘Buy’ and 7 ‘Hold’ recommendations. However, three analysts now recommend that subscribers close positions and move to the sidelines. Price targets currently range from a low of $235 to a Street-high $700 while the stock ended last week about $85 below the median $583 target. This humble placement raises the potential for a ‘buy-the-news’ reaction.

Netflix entered a broad rectangle pattern after posting the all-time high last summer and has now reversed at range resistance three times. However, it’s also held four tests at range support near 465, establishing a standoff that will end with one side getting trapped by an adverse trend. Monthly and weekly relative strength indicators are now entrenched in sell cycles, raising odds that committed sellers eventually take control of the tape.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Morgan Stanley Raises Walt Disney’s Target Price to $175 Ahead of Investor Day 2020 Event

Morgan Stanley raised their stock price forecast on Walt Disney to $175 from $160, assigning an “Overweight” rating and said the entertainment company will lay out a vision for a more substantial streaming business, increasing investment spending and long-term targets in its Investor Day 2020 on December 10.

“Walt Disney (DIS) shares are up over 25% since November 1st, driven primarily by positive vaccine news and the implications for Parks, TV & Film production and distribution, and live sports. We now see our forecast for US Parks losses of -$2.9bn in F2021 and a return to prior peak OI in F2023 as potentially conservative. Recently disclosed reductions in headcount may further reduce losses even in the first half of fiscal 2021,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“The reduced risk of Parks disruption beyond expectations is helpful to shares and helps support our $175 price target (8x our FY25 DTC revs discounted back + 16x calendar ’22E core EPS). We note the S&P is now trading at roughly 22x fwd. EPS,” Swinburne added.

Early last month, the entertainment giant reported its first annual loss in over 40 years, however, the quarterly result was better-than-expected. Disney reported fiscal fourth-quarter losses of $710 million, or 39 cents a share, its second consecutive quarterly loss on a GAAP basis. For the full fiscal year, Disney recorded a GAAP net loss of $2.83 billion.

Morgan Stanley gave a target price of $220 under a bull-case scenario and $115 under the worst-case scenario. Other equity analysts also recently updated their stock outlook. Credit Suisse raised the target price to $178 from $146. JP Morgan upped the price objective to $170 from $160. Citigroup increased the stock price forecast to $175 from $150 and UBS raised the target price to $155 from $126.

In addition, Walt Disney had its price objective lifted by Goldman Sachs to $156 from $142. The firm currently has a buy rating on the entertainment giant’s stock. Deutsche Bank raised shares to a buy rating from hold and boosted its target price to $163 from $128.

Twenty analysts forecast the average price in 12 months at $163.89 with a high forecast of $182.00 and a low forecast of $136.00. The average price target represents a 6.13% increase from the last price of $154.43. From those 20 analysts, 17 rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.

Walt Disney’s shares closed 0.48% higher at $154.43 on Wednesday; the stock is up about 7% so far this year.

“Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities. During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23,” Morgan Stanley’s Swinburne added.

“We now expect Disney Plus to end F25 with 145mm paid subscribers with revenues of nearly $11bn in FY25. Our Hulu, ESPN Plus, and Star assumptions are broadly unchanged leading to 250mm total streaming subscribers by 2025 generating over $33bn in revenues. Fiscal 2020 DTC losses came in at $3.3bn, below the original implied guidance for $3.5-4bn by our estimates, with much stronger customer growth partially offset by Disney leaning in on marketing. For fiscal 2021, we increase our estimate of DTC losses to $4-4.5bn and forecast profitability on DTC in 2024E.”

Walt Disney Breaks Out To All-Time High

Dow component Walt Disney Co. (DIS) is trading at an all-time high on Wednesday after Wells Fargo upgraded the stock to ‘Overweight’. The rally completes an historic 150 point round trip that started from the November 2019 high at 153.41. However, quarterly profits and revenue have crashed since that time due to the COVID-19 pandemic, which forced partial or total shutdowns of worldwide movie production, theme parks, and cruise ship lines.

Easing Pandemic Headwinds

Movie production has sprung back to life but no one knows if patrons will be ready to watch flicks in closed ventilation systems after the distribution of vaccines. Meanwhile, quarterly performance has relied on the huge success of the streaming service, which now boasts more than 70 million subscribers worldwide. Even so, Disney reported a 23.1% year-over-year revenue decline in the third quarter, highlighting dependence on blockbusters through the Star Wars, Pixar, and Marvel franchises.

Wells Fargo analyst Steven Cahall pounded the table on Wednesday, insisting that Disney “is set to complete its transformation into a global streaming content company including the deep Disney brands (Disney+), general entertainment (Star, Hulu, Disney18+) and eventually global sports (ESPN+). We expect global subscribers to go from 117 million today to conservatively 250-300 million in about 5 years. Global content spending would be greater than $22 billion (excluding sports) with DTC revenues of greater than $25 billion.”

Wall Street And Technical Outlook

Wall Street consensus has surged since the first quarter downdraft, with a ‘Strong Buy’ rating based upon 16 ‘Buy’ and 3 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $136 to a Street-high $182 while the stock has opened Wednesday’s U.S. session about $7 below the median $162 target. There should be plenty of upside with this humble configuration.

The stock has completed a V-shaped pattern off the deep March low and broken out to an all-time high. However, accumulation-distribution indicators have not kept up with bullish price action and are situated below both 2019 and September 2020 peaks. This establishes a strong bearish divergence that raises odds for a failed breakout and downside into the November gap between 128 and 134, with the lower end offering a potential low-risk buying opportunity.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Disney Rallies To 10-Month High Ahead Of Earnings

Dow component Walt Disney Co. (DIS) reports Q4 2020 earnings after the U.S. closing bell on Nov. 12, with analysts expecting the entertainment giant to report a loss of $0.65 per-share on $14.14 billion in revenue. The stock rallied nearly 9% after beating Q3 profit estimates by a wide margin in August, even though revenue fell a staggering 41.7% year-over-year. It rallied to a 9-month high on Monday, in reaction to Pfizer’s (PFE) blockbuster vaccine announcement.

Disney Revenue Headwinds

Movie and television production have resumed at a snail’s pace, with California and other venues still under COVID-19 restrictions and reopened theaters bleeding capital. Disney has also reopened a number of theme parks, including Orlando’s Disney World, but visitation has been poor due to air travel fears and continued worries about infection. The second wave sweeping the planet could undermine diminished revenues this winter, reducing confidence in upside potential.

Loop Capital analyst Alan Gould recently upgraded the stock to ‘Buy’, noting “the future, or arguably the present, is all about streaming and sacrificing current profits to be better positioned for streaming. Hence, we anticipate that more resources will be allocated to streaming, Disney will keep its streaming subscription prices lower for longer to encourage subscriber growth and minimize churn. We also expect investors will give Disney a pass on both near-term Covid-19 related losses and increased DTC losses over the next few years”.

Wall Street And Technical Outlook

Wall Street consensus now stands at a marginally positive ‘Moderate Buy’ rating, based upon 10 ‘Buy’ and 4 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines, even though revenue may not fully recover for several years. Price targets currently range from a low of $124 to a Street-high $164 while the stock opened Tuesday’s U.S. session more than $4 below the $144 median target.

The vaccine news lifted Disney above tough resistance at 130 and into the .786 Fibonacci selloff retracement level for the second time since August. The stock now needs to hold the 135.00 to 137.50 price zone to set its sights on 2019’s all-time high at 153.41. That seems like a stretch, given continued headwinds and innumerable obstacles to long-term recovery. Even so, market players may ignore those headwinds if the Disney+ streaming service books strong Q4 growth.

For a look at all of today’s economic events, check out our economic calendar.

Disney Shares Surge After Entertainment Reshuffle

Dow competent Walt Disney Company (DIS) gained over 5% in extended-hours trading Monday after the media giant revealed its plans to reorganize its entertainment and media business, focusing on streaming content.

The company said it will accelerate its direct-to-consumer strategy to centralize its media businesses into a single organization that oversees content distribution, ad sales, and Disney+. The move comes as the global COVID-19 pandemic has crushed the company’s theatrical business and resulted in lackluster movie theater sales. Disney recently delayed its highly anticipated Pixar film “Soul,” which it now plans to screen on Disney+ later this year.

“I would not characterize it as a response to Covid. I would say Covid accelerated the rate at which we made this transition, but this transition was going to happen anyway,” Disney’s CEO Bob Chapek told CNBC’s “Closing Bell” program in relation to the restructuring.

As of Oct. 13, 2020, Disney stock has a market capitalization of over $200 billion and trades down 13.59% on the year. However, since mid-July, the shares have gained nearly 5%. From a valuation standpoint, the company trades at around 48 times projected earnings, substantially above its five-year average multiple of around 21 times.

Wall Street View

In late August, Citi analyst Jason Bazinet raised the bank’s price target on Disney to $150 from $135 and maintained a ‘Buy’ rating on the stock. Even before Disney’s announcement yesterday to accelerate its direct-to-consumer business, Bazinet saw “robust growth” in the segment. The analyst also expects a measured recovery within the company’s core businesses of Parks, Studio, and Media Networks.

Elsewhere on Wall Street, sentiment remains mostly bullish. The stock receives 14 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 10 ‘Hold’ ratings. Price targets range from as high as $163 to as low as $103. The shares currently trade at a 10% discount to the 12 -month median consensus target of $138 as of yesterday’s close.

Technical Outlook and Trading Tactics

After rallying more than 70% between mid-March and early September, Disney shares have undergone a month-long retracement. They currently find support from the 200-day simple moving average (SMA) and a multiyear horizontal trendline.

Momentum appears to be once again turning bullish, with the moving average convergence divergence (MACD) indicator crossing above its trigger line to generate a buy signal. Furthermore, the 50-day SMA moved back above the 200-day SMA last week – a technical sign that often marks the start of a new uptrend. Those who buy the stock at these levels should look to book profits near significant overhead resistance at $146.50, with a stop placed beneath this month’s low at $120.61 to protect trading capital.

Walt Disney Could Trap Complacent Shareholders

Dow component Walt Disney Co. (DIS) announced the layoff of 28,000 employees on Tuesday, with terminations spread across the parks, experiences, and consumer products segments, which accounted for 37% of 2019 company revenues. The job action adds to thousands of previous furloughs in movie and television production, which came to a grinding halt in the first stages of the pandemic and is now challenged by the reluctance of consumers to sit in movie theaters.

Disney Failed Pandemic Initiatives

The entertainment giant has reopened Florida, Paris, Shanghai, and Hong Kong theme parks but California’s flagship operations remain closed due to continued high infection rates in Los Angeles and Orange Counties. Youtube.com is now overloaded with tourist videos showing empty but open parks around the world, questioning the wisdom of Disney reopening those facilities before the pandemic runs its course or an effective vaccine is manufactured.

The company has been burning capital all year, with a $1 billion second quarter loss, followed by a $3.5 billion loss in the third quarter. Even so, the stock traded up to lofty 2019 levels during the summer, with bottom fishers scooping up shares in hopes that various segments would reopen successfully. This month’s failure of the live-action “Mulan” film to perform well as a Disney+ $30 pay-per-view undermined already fragile sentiment that’s now taking another hit in reaction to the layoffs.

Wall Street And Technical Outlook

Wall Street consensus looks way too high given multiple headwinds, with a ‘Moderate Buy’ rating based upon 11 ‘Buy’ and 6 ‘Hold’ recommendations. Just one analyst recommends selling Disney even though revenues may not return to pre-pandemic levels for at least two years. Price targets currently range from a low of $97 to a street-high $164 while the stock is now trading about $8 below the median $133 target.

Disney eased into a massive symmetrical triangle pattern in 2015 and finally broke out in 2019 after announcing the release date for the highly-anticipated Disney+ streaming service. It posted an all-time high at 153.41 in December and dropped into a correction that failed the breakout and triangle support during the first quarter’s pandemic swoon. The stock bounced back above both barriers in the second quarter but recent weakness is taking its toll, raising odds for a renewed decline.

For a look at all of today’s economic events, check out our economic calendar.

Stock Pick Update: September 2 – September 8, 2020

The broad stock market has extended its medium-term uptrend in the last five trading days (August 26 – September 1). The S&P 500 index has set new record high of 3,528.03 on Tuesday, as it further extended its rally after breaking above February 19 high of 3,393.52. Five months ago on March 23, the market sold off to new medium-term low of 2,191.86. It was a stunning 35.4% below February 19 record high of 3,393.52. The corona virus and economic slowdown fears erased more than a third of the broad stock market value. But since then stocks rallied 61.0%.

The S&P 500 index has gained 2.22% between August 26 and September 1. In the same period of time our five long and five short stock picks have gained 1.03%. So stock picks were relatively weaker than the broad stock market. Our long stock picks have gained 2.02% and short stock picks have resulted in a small gain of 0.04%.

There are risks that couldn’t be avoided in trading. Hence the need for proper money management and a relatively diversified stock portfolio. This is especially important if trading on a time basis – without using stop-loss/ profit target levels. We are just buying or selling stocks at open on Wednesday and selling or buying them back at close on the next Tuesday.

If stocks were in a prolonged downtrend, being able to profit anyway, would be extremely valuable. Of course, it’s not the point of our Stock Pick Updates to forecast where the general stock market is likely to move, but rather to provide you with stocks that are likely to generate profits regardless of what the S&P does.

This means that our overall stock-picking performance can be summarized on the chart below. The assumptions are: starting with $100k, no leverage used. The data before Dec 24, 2019 comes from our internal tests and data after that can be verified by individual Stock Pick Updates posted on our website.

Below we include statistics and the details of our three recent updates:

  • September 1, 2020
    Long Picks (August 26 open – September 1 close % change): FIS (+4.53%), MAR (+4.82%), DISH (+1.59%), PXD (-2.85%), WEC (+2.02%)
    Short Picks (August 26 open – September 1 close % change): PSX (-4.28%), D (-0.35%), ANTM (-1.31%), AAPL (+6.34%), HD (-0.62%)Average long result: +2.02%, average short result: +0.04%
    Total profit (average): +1.03%
  • August 25, 2020
    Long Picks (August 19 open – August 25 close % change): VFC (+3.87%), IBM (-0.15%), CAT (+1.91%), CVX (-1.34%), SCHW (+1.72%)
    Short Picks (August 19 open – August 25 close % change): WMB (-2.11%), TROW (-1.15%), XEL (-1.84%), HD (-0.46%), AAPL (+7.62%)Average long result: +1.20%, average short result: -0.41%
    Total profit (average): +0.40%
  • August 18, 2020
    Long Picks (August 12 open – August 18 close % change): BA (-7.49%), SCHW (-1.55%), CXO (-4.91%), BXP (-5.58%), MSI (+5.14%)
    Short Picks (August 12 open – August 18 close % change): CCI (+1.85%), AAPL (+4.58%), CHTR (+3.33%), ROP (+0.48%), SPGI (+3.65%)Average long result: -2.88%, average short result: -2.78%
    Total profit (average): -2.83%

Let’s check which stocks could magnify S&P’s gains in case it rallies, and which stocks would be likely to decline the most if S&P plunges. Here are our stock picks for the Wednesday, September 2 – Tuesday, September 8 period.

We will assume the following: the stocks will be bought or sold short on the opening of today’s trading session (September 2) and sold or bought back on the closing of the next Tuesday’s trading session (September 8).

We will provide stock trading ideas based on our in-depth technical and fundamental analysis, but since the main point of this publication is to provide the top 5 long and top 5 short candidates (our opinion, not an investment advice) for this week, we will focus solely on the technicals. The latter are simply more useful in case of short-term trades.

First, we will take a look at the recent performance by sector. It may show us which sector is likely to perform best in the near future and which sector is likely to lag. Then, we will select our buy and sell stock picks.

There are eleven stock market sectors: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Technology, Communications Services, Utilities and Real Estate. They are further divided into industries, but we will just stick with these main sectors of the stock market.

We will analyze them and their relative performance by looking at the Select Sector SPDR ETF’s.

Based on the above, we decided to choose our stock picks for the next week. We will choose our top 3 long and top 3 short candidates using trend-following approach, and top 2 long and top 2 short candidates using contrarian approach:

Trend-following approach:

  • buys: 1 x Technology, 1 x Communication Services, 1 x Consumer Discretionary
  • sells: 1 x Utilities, 1 x Energy, 1 x Real Estate

Contrarian approach (betting against the recent trend):

  • buys: 1 x Utilities, 1 x Energy
  • sells: 1 x Technology, 1 x Communication Services

Trend-following approach

Top 3 Buy Candidates

CSCO Cisco Systems, Inc. – Technology

  • Possible short-term bottoming pattern along $42
  • The resistance level of $45
  • The support level is at $40

DIS Walt Disney Co. – Communication Services

  • Stock remains above month-long upward trend line
  • Possible uptrend continuation
  • The resistance level of $135.0
  • The support level is at $127.5

MAR Marriott Intl Inc New – Consumer Discretionary

  • Stock fluctuates after breaking above short-term downward trend line
  • The resistance level and an upside profit target level is at $115, marked by previous high

Summing up, the above trend-following long stock picks are just a part of our whole Stock Pick Update. The Technology, Communication Services and Consumer Discretionary sectors were relatively the strongest in the last 30 days. So that part of our ten long and short stock picks is meant to outperform in the coming days if the broad stock market acts similarly as it did before.

We hope you enjoyed reading the above free analysis, and we encourage you to read today’s Stock Pick Update – this analysis’ full version. There, we include the stock market sector analysis for the past month and remaining long and short stock picks for the next week. There’s no risk in subscribing right away, because there’s a 30-day money back guarantee for all our products, so we encourage you to subscribe today.

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Walt Disney Q3 Revenue Slumps Over 40% as COVID-19 Pandemic Bites; Target Price $80 in Worst-Case Scenario

Walt Disney Co, a family entertainment company, said its net income declined sharply in the third fiscal quarter that ended in June due to the COVID-19 pandemic that shut down parks, sporting events, resorts and movie theatres, but saw a rise in Disney+ streaming subscribers to 60.5 million.

The world’s leading producers and providers of entertainment and information said its diluted earnings per share from continuing operations for the quarter was a loss of $2.61 compared to income of $0.79 in the prior-year quarter. EPS from continuing operations for the nine months ended in June was a loss of $1.17 compared to income of $5.97 in the prior-year period.

Disney said its operating income at the movie studio plunged over 15% to $668 million. Overall revenue slumped more than 40% to $11.78 billion. Net loss from continuing operations was $4.72 billion, or $2.61 per share, in the third quarter ended in June, worse from a net profit of $1.43 billion, or 79 cents per share, the same period a year ago.

“As expected, Disney’s fiscal third quarter was hit hard by the pandemic as revenue at the parks and studio segments were down 85% and 55%, respectively. While some parks have reopened, we still expect minimal revenue in the fiscal fourth quarter due to limited capacity and surges in cases in local markets,” said Neil Macker, senior equity analyst at Morningstar.

“Disney+ remains a bright spot as the service now has over 60 million subscribers, with launches planned in Northern Europe, Latin America, and now Indonesiabefore end of the calendar year. Despite the COVID-19-related revenue drop, the long-term outlook is positive as Disney continues to expand its direct relationships with consumers around the world. We maintain our wide moat and our $127 fair value estimate,” Macker added.

The most significant impact in the current quarter from the COVID-19 was an approximately $3.5 billion adverse impact on operating income. The Disney+ streaming paying subscribers rose to 60.5 million, from 54.5 million as of May 4.

Executive comments

“Despite the ongoing challenges of the pandemic, we’ve continued to build on the incredible success of Disney+ as we grow our global direct-to-consumer businesses,” Bob Chapek, Chief Executive Officer said in a press release.

“The global reach of our full portfolio of direct-to-consumer services now exceeds an astounding 100 million paid subscriptions – a significant milestone and a reaffirmation of our DTC strategy, which we view as key to the future growth of our company.”

“The majority of businesses worldwide have experienced unprecedented disruption as a result of the pandemic. Most of our businesses were shut down, and this had a huge impact. What we plan to do is invest even more in our content in order to keep that machine cranked and going,” Disney‘s Chapek told analysts, reported by Reuters.

Walt Disney stock forecast

Twenty-one analysts forecast the average price in 12 months at $120.38 with a high forecast of $146.00 and a low forecast of $85.00. The average price target represents a 2.63% increase from the last price of $117.29. From those 21, seven analysts rated ‘Buy’, 12 analysts rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $135 with a high of $165 under a bull scenario and $80 under the worst-case scenario. Several other equity analysts have also updated their stock outlook.

Walt Disney had its target price lifted by analysts at Guggenheim from to $123 $115.00. The firm currently has a “neutral” rating on the entertainment giant’s stock. SunTrust Banks raised their price objective on shares to $160 from $110 and gave the stock a “hold” rating. We think it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild selling opportunity.

Analyst comment

“Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities,” said Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY22,” he added.

Upside and Downside risks

Accelerated OTT adoption drives higher DTC revenues and faster profitability; Distribution renewals lead to favourable pricing acceleration; Film success drives strong franchise monetization, Morgan Stanley highlighted as upside risks to Disney.

Macro econ weakness; Acceleration in pay-TV cord-cutting remains a risk, given DIS exposure to pay-TV revenues; Franchise fatigue could pressure box office, lower Consumer Products monetization, were the major downside risks.

What To Expect After Walt Disney Earnings

Walt Disney Co. (DIS) reports fiscal Q3 2020 earnings after Tuesday’s closing bell in the United States, with analysts expecting a loss of $0.64 per-share on $12.48 billion in revenue. The stock tread water after missing Q2 profit estimates by a wide margin in May, with shareholders hanging tough as soon as the company reported outstanding subscription growth in the Disney+ streaming service. It’s now trading 15% higher but still below levels broken in the first quarter.

Walt Disney Reopens Florida Theme Park

The Disney World Resort in Orlando, Florida reopened in July, right at ground zero in the U.S.A.’s COVID-19 summer spike. Anecdotal evidence suggests that out-of-state visitors are avoiding the park like the plague but the entertainment giant has offered few specifics. As a result, Wall Street analysts will be listening closely to Tuesday’s conference call, trying to gauge the success or failure of the questionable initiative.

Theme parks are just one of many divisions impacted by the pandemic, with the majority of film production still shut down, forcing Walt Disney to delay the filming of new Star Wars, Marvel, and Pixar movies. The ESPN sports division is struggling as well, with MLB games delayed due to team outbreaks that threaten to derail an abbreviated 60-game season. And, of course, no one expects Disney cruise ships to sail again before the second quarter of 2021.

Wall Street And Technical Outlook

Wall Street Consensus remains highly guarded, with a ‘Hold’ rating based upon 7 ‘Buy’ and 12 ‘Hold’ recommendations. Two analysts believe that shareholders should consider moving to the sidelines at this time. Price targets currently range from a low of $85 to a street-high $146 while the stock is trading $4 below the median $120 target. It’s possible another blowout quarter in Disney+ subscriptions could lift sentiment enough to reach the median target.

Walt Disney is holding up relatively well, given multiple headwinds, oscillating just below the 200-day moving average at 120. Buying pressure eased in June after an oversold impulse, with holding patterns pointing to a wait-and-see attitude by shareholders. A destructive second pandemic wave this fall and winter could shake that faith, generating an exodus that brings the first quarter low back into play.

Walt Disney Struggling To Rebuild Lost Revenue Streams

Dow component Walt Disney Co. (DIS) will reopen Florida’s Disney World resort and theme park this weekend, despite a raging COVID-19 epidemic in the Sunshine State. The decision highlights the entertainment giant’s struggle to rebuild lost revenue, with movie production, sporting events, live broadcasting, cruise ships, theme parks, and theater chains still closed or operating with limited capacity in many parts of the world.

Disney Pandemic Headwinds

The pandemic’s perfect storm forced Disney to suspend payment of its semi-annual dividend when it reported a mixed first quarter in May. The company earned just $0.60 per-share in fiscal Q2 2020, missing Wall Street estimates by $0.30, while revenue beats expectations with a 20.7% year-over year increase. However, the bulk of revenue was booked in the first half of the quarter, before the closing of major income sources.

Wells Fargo’s Steven Cahill recently offered a sobering view of Disney’s profit outlook, despite raising their price target from $107 to $118. He warned that “we think financial progress could be choppy. Nationwide hot spots could render Walt Disney World (WDW), the driver of Parks operating income, severely capacity-constrained for some time. WDW and Disneyland park-goers may spend fewer hotel nights with rates softer due to recession, and cruises are unlikely anytime soon.”

Wall Street And Technical Outlook

Wall Street consensus is evenly divided, with 8 ‘Buy’ and 11 ‘Hold’ ratings, while two analysts recommend that investors hit the sidelines. Price targets currently range from a low of $85 to a street high $146, with the stock trading about 8 points below the median $122 target on Wednesday morning. These numbers look high after factoring in the current state of the pandemic in the United States, with many venues reporting out-of-control infections that have forced local officials to shut down all but essential operations.

Disney’s technical outlook looks bearish because the first quarter decline triggered a failed breakout though 4-year resistance around 120. The stock bounced back to that price level in the second quarter and reversed, reinforcing a barrier than could take several years to overcome. In addition, accumulation readings are stuck in the mud despite the oversold bounce, indicating that many investors are sitting on their hands, waiting for the pandemic to run its course.

Netflix Near All-Time High After COVID-19 Shutdowns

Netflix (NFLX) posted strong Q1 2020 results in April, meeting aggressive revenue guidance at $5.75 billion. The company added 15.77 million subscribers, more than double the consensus, but the streaming giant missed the $1.57 EPS estimate. Analysts may have miscalculated the impact of stay-at-home and quarantine orders, triggering the shortfall. Upside guidance for Q2 expects the the company to earn $1.81 EPS and $6.05 billion in revenues. Spokesmen haven’t discussed recent performance but Q2 2020 earnings are scheduled for July 21 release.

Wall Street Bullish Consensus

Wall Street rushed to upgrade Netflix when the pandemic hit the USA in the first quarter,  realizing that subscriber growth would escalate due to shutdowns. It’s now rated a ‘Moderate Buy’ at TipRanks, based upon estimates from 35 analysts covering the stock. 24 ‘Buy’, 7 ‘Hold’, and just 4 ‘Sell’ recommendations support the bullish consensus rating, despite the lofty 84.61 price-to-earnings ratio (P/E). Updated price targets range from $198 to $580 and the stock is now trading nearly 50 points below the mid-range target of $465.

The bullish performance has generated enthusiastic analyst commentary this June, with JP Morgan analyst Doug Anmuth maintaining an overweight rating. He reiterated a $535 price target while noting that “daily average user (DAU) growth remains elevated from pre-COVID-19 levels and has been stable for about 6 weeks at 20% year-over-year, suggesting strong engagement”. He also highlighted Southeast Asian growth after successful launches in the Philippines, Thailand, Indonesia, and Malaysia.

Mixed Netflix Outlook

The technical chart has generally tracked bullish commentary so far in 2020. Netflix broke out above 2018 resistance at $423 in April but has struggled to gain ground since that time, wobbling back and forth across the breakout price. This price action denotes high levels of uncertainty, with post-outbreak normalcy favoring bears while fears about a dreaded ‘second wave’ reinforce the bullish argument.

Netflix growth could be hampered by a highly-competitive landscape after the current crisis. New services from Walt Disney (DIS), Apple (AAPL),  and Comcast (CMCSA) could take market share and stretch subscriber budgets. The ‘steaming wars” became a hot topic in 2019 before the November Disney+ release but has receded during the pandemic. It’s certain to make headlines once again if Netflix’s July earnings fail to meet estimates.

Disney Empire Maimed by Coronavirus Menace

Many of the platform’s subscribers, which now number more than 50 million, would welcome the ability to indulge in the latest installment of the Star Wars movie franchise from the comforts of home.

On May 5 however, Disney’s shareholders may be less excited about what the company has to unveil. After Tuesday’s US market close, Disney is set to release its latest quarterly earnings, which is expected to lay bare the financial damage caused by the Covid-19 pandemic.

Disney’s land: a not-so-happy place on earth

Disney’s theme parks had been a constant source of revenue and profits for the world’s largest entertainment company. In 2019, over a third of Disney’s total revenue for the year came from its parks, experiences and products segment, which also contributed nearly half of its operating income.

Covid-19’s global reach has put a dark twist to one of Disney’s most iconic theme park attractions, proving that it indeed is a ‘small world after all’. Disney’s 14 theme parks have been shut all across the globe, with no definite timeline as to when they might reopen. And when they eventually reopen, the parks could well miss out on the summer crowd. One also has to wonder whether the “new normal” would even allow for tens of millions of people to roam freely around any theme park.

Disney’s media networks and studio entertainment, two segments which together accounted for about half of the company’s total revenue last year, have also been slammed hard by the coronavirus outbreak. The coronavirus has caused Disney’s pipeline of produced content to run dry, with the entertainment industry choked by lockdown measures. Live sporting events have been yanked, while big theatrical releases such as Mulan have been pushed back.

Overall, Disney’s profits for the first three months of 2020 are expected to be slashed by half.

Can the Disney empire strike back?

Set against such dismal expectations for the earnings announcement, even the excitement surrounding Disney+ won’t be enough to cast aside the near-term gloom for the House of Mouse, despite the streaming platform being well on-course to hit its target of 60-90 million subscribers worldwide by 2024. As the Star Wars Day celebrations on May 4 give way to harsh evidence of an ailing business empire, Disney’s shares could well lose their claim of having entered a technical bull market since March 23, especially if its fiscal Q2 results prove worse than expected.

Shareholders will be eager to find out if the new CEO, Bob Chapek, can signal a new hope amid the raging uncertainties. Only time will tell how well Disney’s resistance prevailed against the coronavirus menace.

Written on 05/05/20 08:00 GMT by Han Tan, Market Analyst at FXTM

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Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.


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Stocks Are Falling on April 20 As Oil Prices Plunge

The next significant level of support for oil comes around $10.50, a price not seen in decades. The oil market is telling us that not all is well in the economy and that demand is weak. I talked about this disconnect in the week ahead commentary for subscribers yesterday.

Simple, put, the signals from the commodity, bond, and forex market are not reflecting the same bullish optimism of the equity market.

USOIL Daily Chart

S&P 500 (SPY)

The S&P 500 ETF is merely only giving back part of what they gained on that big closing cross, end of the day buy program into options expiration on Friday.  The first level of support comes at  $273.60, and then $263.40.

Bank of America (BAC)

Bank of America is falling some today, and I still happen to think that the stock is going to refill that gap around $20.

Daily BAC Chart

Tesla (TSLA)

Tesla had a big run last week. But shares are falling a bit today, and they could drop to support and the uptrend around $680.

Daily TSLA Chart

Disney (DIS)

Disney was downgraded today to neutral from buy at UBS. Additionally, the stock price target was cut to $114 from $162. The stock has failed multiple times at resistance around $109, and I think the stock is going to head back to the lows around $78.60.

Daily DIS Chart

Nike (NKE)

Nike has a rising wedge pattern in the chart, and that could result in a gap fill around $78.

Daily NKE Chart

Nvidia (NVDA)

Nvidia is falling today, and I still happen to think this one is heading lower. The stock is sitting on support and an uptrend near $284. A break of that trend could get the shares moving back to $218. Call me crazy.

Daily NVDA Chart

This article was written by Michael Kramer the financial market strategist and the portfolio manager of the Mott Capital Thematic Growth Portfolio.


Mott Capital Management, LLC is a registered investment adviser. 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 results.

Global Crisis: Time to Enter the Market

If fundamentals stay as they are, we are likely to see the market gradually recover its losses, half of which are already reconquered. That makes this moment attractive to buy stocks. If we witness this moment, it will be the perfect timing to buy stocks. All you need is to choose a suitable trading platform. FBS Trader offers low spreads and fast deposits and withdrawals. So, why not? You can consider the following notable performers.

Disney

Strategically, Disney’s stock was rising in value before the virus came. The company also launched its Disney+ streaming service at the end of 2019, which made the price surge even higher – to the all-time high of $150. Therefore, it has all the fundamentals to rise when the virus outbreak is finally over. Paying $100 now for something that used to cost $150 is a rare discount. You can take this chance and buy or sell Disney’s stock in new and innovative app from FBS. In the short term, look at $120 per share as the resistance to be tested and probably broken.

Walmart

Walmart is on the list because of its strong fundamentals and a huge discount. Walmart is here for the same reason. At the same time, there’s more to this stock: although at a discounted price, it didn’t fall as much as most of its peers did. In fact, it’s one of the few shares that proves to be quite resilient to the virus-led plunge. Therefore, it makes sense to look at the current price and think of buying one of the strongest market performers that was traded at $125 a couple of months ago. With the pending order feature in the FBS Trader app, you can profitably buy stocks and select at which price level a position should be opened.

NVIDIA

NVIDIA is interesting because it represents the foremost frontier of the progress: virtual reality, video games, cloud technologies, etc. After the company sorted out its problems in 2018, it went into steady growth. There are reasons to expect that it will keep the line after the virus is gone. Now at $244, it is down 24% from its recent record – a significant discount for this share. The logic to take it is “buy the future”. And it is possible with FBS Trader app, which offers essential features for trading, such as instant deposits and withdrawals within over 100 payment systems.

Coca-Cola

Don’t be surprised to see Coca-Cola here. Actually, never be surprised to see it under any circumstances – it is one of the few century-old stocks that survived wars and pandemics and will survive us. If you like the logic “if Warren Buffett has it, I will have it”, you should like this stock. The price of $41 is offered for a $60-worth stock in March. Fortunately, FBS Trader provides you with online access to trading worldwide – anywhere and anytime. You can use the chance to buy Coca-Cola stocks at the time that suits you best.

Mastercard

Payment processing will recover before other industries wake up. This stock looks especially good as Chinese authorities allowed Mastercard to establish clearing services in China, and China is already on the way out of the virus-oppressed state. Mastercard looked strong before, it looks strong now, and trades at $256 after $347 – an offer one cannot lose, especially when you have the app for traders that opens up new opportunities.