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Disney Stock Always Has Value

Nicolas Chahine

There is hardly anyone on the planet who doesn’t know the house of mouse. Disney (NYSE:DIS) is a household name everywhere. Notoriety  has never been a problem for the stock, but its future is always in contention as critics are often quick to voice their concerns.

DIS Stock: Disney Stock Always Has Value

Source: Baron Valium via Flickr

Disney reports its earnings tonight and if we take cues from Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) earnings reaction, DIS investors should be nervous. But I am here to tell you that what ever happens overnight won’t matter for long.

The short term knee-jerk reaction to the earnings is always a binary event, so it’s more betting than investing. Real investors in Disney stock will take their cues from what the management actually delivers and not from what so-called experts decide is good in one report.

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I have been a long-term fan of the stock even when it was stalled. I sold downside risk into dips to generate income. I mention this here to state that there is always value in the DIS stock regardless of the headline fears. Corrections in the stock when they come are buying opportunities.

The Impact of DIS Stock Earnings

The earnings report raises the implied volatility as traders brace for impact. Again, in the long run this won’t matter one bit. I do recognize that for the next few quarters, the reports will be confusing as DIS stock will start reporting on its direct-to-consumer segments. Investors will need time to digest the new metrics.

Furthermore, management will update us on things Disney+ like launch dates and nail down the pricing. I bet that ESPN+ continues to perform well. And I never worry about the performance of Disney’s theme parks or its movies, so I don’t anticipate a bombshell.

Technically, DIS stock trades erratically and in waves, and this is unusual for such a stable and mature company. But it does so inside predictable ranges, so its stock chart from that perspective is boring seesaw in the short term. So I don’t over-react to small moves.

Sometimes boring is beautiful, and in this case here, it’s not a superstar stock like its new nemesis Netflix (NASDAQ:NFLX) for example. Yet, DIS still is up 45% in five years. While this pales against NFLX’s 400%-plus gain, it is still respectable and in line with the S&P 500.


It is safe to say that if markets crash, I would be more comfortable owning shares of DIS than NFLX. This is not to diss the streaming giant but a testament to the quality of Disney stock. I feel like it belongs in every balanced portfolio, especially now when we have so many headline threats looming into March.

Given the recent big strategic moves that Disney management has made, I bet that there is confusion among Wall Street experts. The stock needs time for it to absorb new assets it acquired. Messy financial reports make for jittery stocks. And given how well it held up so far, I am encouraged that the worst of the volatility is almost over.

They recently severed their ties to NFLX and will soon become a direct competitor to it in media streaming. While this, too, was a cause of worry to some traders, it’s an opportunity unfolding. There are some uncertainties around the deployment process, but this is a small exercise in operational launch of a platform — no different than installing a faucet.

DIS stock is a proven team and I am confident that they can execute the plan with ease. They will install that faucet and start streaming in the income. The bigger challenge then is for analysts on how to grade the company going forward.

Consequently, earnings reports could be confusing for a few quarters as they tackle project costs but so far are relatively tame.  The rewards from the efforts will flow for years to come. Netflix proved to us that we prefer to consume media via streaming and that the trend is not going to reverse. Disney’s expenses on their platform is money well spent.

To state things simply, don’t be nervous going into the earnings event. Disney is a proven winner that will continue to flourish for years to come. I expect that tomorrow’s stock open will come down to guidance. If Disney sounds confident about its prospects then traders will embrace it. Other wise they may sell it off for a few days until they work it out of their system.

Last night GOOGL reported its earnings and the dip is minor compared to what the options markets had priced in. So maybe the low VIX is bringing in milder reactions to disappointments.

Click here for a bonus video that I recently shared discussing GOOGL stock coming into the earnings. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.

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