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Earnings Preview: Disney

Zacks Equity Research

The Walt Disney Company (DIS) is set to report its first-quarter fiscal 2013 results on Feb 5, 2013. Last quarter, the company met the Zacks Consensus Estimate. Let’s see how things are shaping up prior to the announcement.

Factors to Consider This Quarter

Disney continues to deploy capital toward enhancing its portfolio of globally recognized brands and remains focused on generating increased income from affiliate deals and retransmission renewals to drive long-term growth.

Disney’s Cable Networks, Consumer Products, and Parks and Resorts businesses are performing well, enabling the company to post strong results. Going ahead, Disney remains well positioned to drive growth through its strategic initiatives.

However, Disney listed a number of challenges which will negatively impact its financials in the upcoming quarter, including an increase of $170 million in domestic sports right costs, difficult home video comparison, higher tax rate (2% higher than the prior-year quarter) and the effects of Hurricane Sandy. Moreover, the company’s capital spending is likely to put pressure on margins in the near term.  

Earnings Whispers?

Our proven model does not conclusively show that Disney is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank of #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Negative Zacks ESP: This is because the Most Accurate Estimate stands at 76 cents, while the Zacks Consensus Estimate is pegged at 77 cents. This comes to a difference of -1.30%.

Zacks Rank #3 (Hold): Disney with a Zacks Rank #3 (Hold), enhances the possibility of an earnings surprise. However, the Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult. We also caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is experiencing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies from the sector you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

Comcast Corporation (CMCSA) has an Earnings ESP of +1.89% and carries a Zacks Rank #3 (Hold). It is scheduled to report its fourth quarter results on Feb 13.

Cablevision Systems Corporation (CVC) has an Earnings ESP of +10.00% and holds a Zacks Rank #3 (Hold). It is yet to release its fourth quarter results.

Liberty Global Inc. (LBTYA) has an Earnings ESP of +86.67% and carries a Zacks Rank #3 (Hold). It is yet to release its fourth quarter results.

Read the Full Research Report on CVC

Read the Full Research Report on LBTYA

Read the Full Research Report on DIS

Read the Full Research Report on CMCSA

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