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Will Investments in Parks Aid Disney (DIS) in Q2 Earnings?

Zacks Equity Research

Disney’s DIS continued investments in its theme parks are likely to increase attendance levels in second-quarter fiscal 2019, which it is set to report on May 8.

The second-quarter results are expected to benefit from solid performance of Captain Marvel and growing subscriber base of ESPN+. However, heightened level of investments is expected to drag down profitability.

Notably, the company reported revenues of $15.30 billion in first-quarter fiscal 2019, which remained with the year-ago quarter but surpassed the consensus mark of $15.18 billion.

Click here to know how Disney’s overall second-quarter fiscal 2019 performance is likely to be.

The Walt Disney Company Price and EPS Surprise

The Walt Disney Company Price and EPS Surprise | The Walt Disney Company Quote

Higher attendance levels: Key Catalyst

Higher attendance levels are likely to help the company increase its monetization opportunities from customer spending. This, in turn, may result in higher revenues for the Parks, Experiences & Consumer Products segment in the to-be-reported quarter. The Zacks Consensus Estimate for the segment revenues is pegged at $5.22 billion.

Additionally, Disney’s strategy to better manage its attendance levels by extending its demand-based pricing strategy to multi-day tickets is likely to distribute demand throughout the year. Moreover, this strategy will help the company prevent fluctuations in revenues, reduce wait times and offer better service its customers.

This, in turn, is expected to boost per capita spending in areas like ticket prices, food and beverage, merchandise spending and daily hotel room rates.

This apart, Disney continues to add new experiences to its theme parks. This may boost repeat customer visits to the parks in second-quarter fiscal 2019.

Notably, one of the new experiences added in the to-be-reported quarter is “Mickey & Minnie’s Surprise Celebration at Magic Kingdom Park.” The celebration features new entertainment, “specialty food and beverages” and merchandise.

Disney sells a variety of merchandise centered around popular characters from its strong film slate. The solid performance of Captain Marvel in second-quarter fiscal 2019 may also be one of the key reasons for the increase in merchandise sales.

However, softness experienced in tourism and consumer confidence in China may hurt attendance levels in the to-be-reported quarter. Moreover, the segment’s operating income is expected to be lower owing to the adoption a new revenue standard.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.  Zacks Rank #4 (Sell) or 5 (Strong Sell) are best avoided.

Disney has a Zacks Rank #4 and an Earnings ESP of +2.31%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to post earnings beat this quarter:

lululemon athletica inc. LULU has an Earnings ESP of +0.51% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Electronic Arts Inc. EA has an Earnings ESP of +16.29% and a Zacks Rank #1.

Rent-A-Center, Inc. RCII has an Earnings ESP of +21.98% and a Zacks Rank #1.

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The Walt Disney Company (DIS) : Free Stock Analysis Report
Rent-A-Center, Inc. (RCII) : Free Stock Analysis Report
lululemon athletica inc. (LULU) : Free Stock Analysis Report
Electronic Arts Inc. (EA) : Free Stock Analysis Report
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