Disney Bulls Await Earnings For Streaming Growth, Bob Iger Successor Clues

Warner Bros. Discovery (WBD) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.

Shares of this operator of cable TV channels such as TLC and Animal Planet have returned +21.3% over the past month versus the Zacks S&P 500 composite's +3% change. The Zacks Broadcast Radio and Television industry, to which Warner Bros. Discovery belongs, has gained 12.7% over this period. Now the key question is: Where could the stock be headed in the near term?

Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Earnings Estimate Revisions

Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.

We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

Warner Bros. Discovery is expected to post earnings of $0.06 per share for the current quarter, representing a year-over-year change of +137.5%. Over the last 30 days, the Zacks Consensus Estimate has changed +125%.

For the current fiscal year, the consensus earnings estimate of -$4.41 points to a change of -244.5% from the prior year. Over the last 30 days, this estimate has changed +2.1%.

For the next fiscal year, the consensus earnings estimate of $0.09 indicates a change of +102% from what Warner Bros. Discovery is expected to report a year ago. Over the past month, the estimate has changed +12.5%.

Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Warner Bros. Discovery is rated Zacks Rank #3 (Hold).

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Revenue Growth Forecast

Even though a company's earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It's almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company's potential revenue growth is crucial.

For Warner Bros. Discovery, the consensus sales estimate for the current quarter of $10.62 billion indicates a year-over-year change of +3.2%. For the current and next fiscal years, $39.95 billion and $40.69 billion estimates indicate -3.3% and +1.9% changes, respectively.

Last Reported Results and Surprise History

Warner Bros. Discovery reported revenues of $9.62 billion in the last reported quarter, representing a year-over-year change of -3.6%. EPS of $0.05 for the same period compares with -$0.17 a year ago.

Compared to the Zacks Consensus Estimate of $9.9 billion, the reported revenues represent a surprise of -2.77%. The EPS surprise was +171.43%.

Over the last four quarters, the company surpassed EPS estimates just once. The company topped consensus revenue estimates just once over this period.

Valuation

No investment decision can be efficient without considering a stock's valuation. Whether a stock's current price rightly reflects the intrinsic value of the underlying business and the company's growth prospects is an essential determinant of its future price performance.

While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Warner Bros. Discovery is graded B on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Bottom Line

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Warner Bros. Discovery. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term.

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China is home to some of the world’s biggest tech companies, many of which offer services similar to U.S. tech giants. For instance, Baidu is termed as the “Chinese Google,” while Weibo is the Chinese version of X (formerly Twitter) - which is banned in the communist country, for obvious reasons. Alibaba is dubbed the “Amazon of China,” while iQiyi is seen as China’s answer to Netflix .

In the electric vehicle (EV) space, Tesla is the gold standard – not only for U.S.-based companies, but globally. During the heyday of the special purpose acquisition company (SPAC) boom between 2020 and 2021, it was normal for analysts to benchmark newly listed electric vehicle (EV) companies against Tesla, and startups like Lucid Motors also rather generously compared their evolution to that of Tesla.

Cut to 2024, and EV startups in the U.S. are struggling—or worse, have gone out of business. However, Chinese companies are giving Tesla a tough fight not only in the domestic market, but internationally.

Musk Sees Chinese Companies as a Potent Threat

No wonder, then, that Tesla CEO Elon Musk – who once scoffed at the possibility of BYD becoming its competitor – has been all praise for Chinese EV companies. During Tesla’s Q4 2023 earnings call earlier this year, Musk said “Frankly, I think if there are no trade barriers established, they (Chinese car companies) will pretty much demolish most other companies in the world.” He described them as the “most competitive globally" - something every auto executive would attest to (perhaps not in public, but at least privately).

The billionaire echoed similar views during Tesla’s Q4 2022 earnings call last year when he said that Chinese car companies “work the hardest and they work the smartest.” He added, "And so if I would have guessed, there are probably some companies out of China as the most likely to be second to Tesla.”

Which Chinese EV Company Can Be the Next Tesla?

China is the home to multiple EV companies – both established and in the startup space. BYD is already the world’s biggest seller of new energy vehicles (NEVs), even as over 60% of its shipments in Q3 were plug-in hybrid vehicles (PHEVs).

That said, the company’s overall shipments are over twice that of Tesla, and in Q3 2024 it delivered over 1 million cars for the first time. It has surpassed Tesla in terms of total revenues, and while Tesla still retains the title of the world’s largest seller of battery electric vehicles (BEVs), BYD is fast catching up. BYD, incidentally, took the crown in Q4 2023, but Tesla soon reclaimed it.

NIO was once touted as the “Tesla of China.” However, the company failed to meet high expectations. Also, its initial business strategy of using a third party to manufacture its cars was at odds with Tesla, which is among the most vertically integrated automakers globally.

Several other Chinese companies aspire to become the “next Tesla.” For instance, earlier this year, Chinese EV company Zeekr said that its batteries can go from a 10% to an 80% charge in only 10.5 minutes, which is faster than Tesla.

Tesla is Not Merely an EV Company

When we talk about Tesla, it's worth pointing out that it's not merely an EV maker, or else markets wouldn’t be valuing it at over a trillion dollars - which is higher than the combined market cap of all leading automakers put together. Tesla is a play on other businesses, most importantly the autonomous driving and artificial intelligence (AI) endeavors.

On multiple occasions, Musk has stressed that the company’s valuation is linked to its progress on autonomy. Over the long term though, the mercurial CEO believes that AI will add a lot of value for shareholders.

At the shareholder meeting earlier this month, Musk said that the company’s Optimus humanoid could add $25 trillion to Tesla’s market cap. To put it simply, Tesla is a play on EVs, autonomous driving, AI - and above all, Musk, who is quite ambitious and visionary while being controversial at the same time.

Can Xpeng Motors Be the Next Tesla?

I believe Xpeng Motors is one Chinese company that comes quite close to Tesla in strategy as well as ambitions. While the company’s EV deliveries have been below par for most months over the last two years, things are now looking back on track, with deliveries rising to a record high last month.

In terms of autonomous driving, Xpeng's driver-assist technology is regarded as among the best – if not the best – in China. At its AI Day earlier this month, Xpeng unveiled its Turing AI Intelligent Driving System, which it said paves “the way for L4 autonomous driving.”

No wonder that German auto giant Volkswagen invested in the company and said the two will jointly produce cars for the Chinese market. In the U.S., Volkswagen has invested in Rivian , which is seen as a credible challenger to Tesla.

Xpeng is Also an AI Play

XPEV stock is also an AI play, and at the AI Day, it unveiled the advanced humanoid AI Robot Iron which is powered by its Turing AI chip. Xpeng also has a flying car subsidiary named Xpeng Aeroht, which will open pre-orders in December. Finally, like Musk, Xpeng Motors’ CEO He Xiaopeng is quite ambitious and visionary, even as arguably at times his forecasts have turned out to be a lot too optimistic.

All said, if Xpeng Motors really aspires to be the next Tesla, the company has to first reach significant scale in its EV operations. While green shoots are emerging after strong deliveries over the last couple of months, Xpeng has to reach a critical mass in terms of deliveries before it is put in the same league as Tesla.

On the date of publication, Mohit Oberoi had a position in: TSLA , NIO , XPEV , BABA , AMZN , RIVN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

For Immediate Releases

Chicago, IL – November 13, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include including Netflix, Inc. NFLX, Salesforce, Inc. CRM and Cisco Systems, Inc. CSCO and BK Technologies Corp. BKTI.

Here are highlights from Wednesday’s Analyst Blog:

Top Stock Reports for Netflix, Salesforce and Cisco

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Netflix, Inc., Salesforce, Inc. and Cisco Systems, Inc., as well as a micro-cap stock, BK Technologies Corp. These research reports have been hand-picked from roughly 70 reports published by our analyst team today.

You can see all of today’s research reports here >>>

Netflix’s shares have outperformed the Zacks Broadcast Radio and Television industry over the past two years (+169.1% vs. +77.1%). The Zacks analyst believes that the planned launch of an in-house ad tech platform next year signals the company's commitment to maximize its revenue stream, with ad revenues expected to roughly double year-over-year in 2025. A robust, localized and foreign-language content lineup and healthy customer engagement levels have helped.

However, stiff competition in the streaming space from the likes of Apple, Amazon Prime Video and Disney+ remains a headwind.

(You can read the full research report on Netflix here >>>)

Salesforce’s shares have outperformed the Zacks Computer – Software industry over the past year (+58.7% vs. +21.3%). The Zacks analyst believes that the company’s sustained focus on aligning products with customer needs is driving growth. Continued deal wins in the international market are another growth driver. Salesforce’s strategy of continuous expansion of generative AI offerings are also helping it to tap the growing opportunities in the space.

Yet, stiff competition and unfavorable currency fluctuations are concerns. Softening IT spending amid ongoing macroeconomic uncertainties might hurt its growth prospects.

(You can read the full research report on Salesforce here >>>)

Shares of Cisco have outperformed the Zacks Computer - Networking industry over the last six months (+20.4% vs. +19.2%). Per the Zacks analyst, the launch of AI-powered Hypershield, which combines security and networking, has strengthened the company’s security portfolio. Also, its business model has evolved with subscription revenues accounting for more than half of total revenues.

Yet, Cisco has been suffering from sluggish networking sales as well as stiff competition. Its prospects are further challenged in the AI-driven networking space due to stiffening competition aggravated by Hewlett Packard’s deal to acquire Juniper.

(You can read the full research report on Cisco here >>>)

BK Technologies’ shares have outperformed the Zack Wireless Equipment industry over the past year (+119.5% vs. +52.3%). The Zacks analyst believes that the growing demand for BKR 9000 and BKR 5000 radios have supported revenue growth. Also, a large order backlog and focus on innovation, such as the patented InteropONE solution, strengthens BK's market position.

However, reliance on government contracts, supply-chain risks and limited product diversification pose potential challenges.

(You can read the full research report on BK Technologies here >>>)

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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For Immediate Releases

Chicago, IL – November 13, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include including The Walt Disney Company DIS, Amazon AMZN, Netflix NFLX and Comcast CMCSA.

Here are highlights from Wednesday’s Analyst Blog:

To Buy Or Not To Buy: Disney Ahead of Q4 Earnings

The Walt Disney Company is slated to report fourth-quarter fiscal 2024 results on Nov. 14.

The Zacks Consensus Estimate for revenues is pegged at $22.59 billion, suggesting modest growth of 6.37% from the year-ago quarter’s reported figure.

The consensus mark for earnings has moved south by a penny to $1.09 per share over the past 30 days, indicating growth of 32.93% year over year.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

In the last reported quarter, Disney delivered an earnings surprise of 15.83%. The company’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 18.01%.

The Walt Disney Company price-eps-surprise | The Walt Disney Company Quote

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Disney this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

DIS has an Earnings ESP of -1.63% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Shaping Upcoming Results

As the media landscape shifts from traditional linear TV to streaming, Disney finds itself in an enviable position. With two robust U.S. streaming services, Disney+ and Hulu, complemented by ESPN+, the entertainment giant is well-equipped to navigate this transition seamlessly.

One of Disney's key advantages is its bundling strategy, which combines these streaming services into a compelling package. This approach is not only expected to have boosted average revenue per account in the to-be-reported quarter but is also likely to have helped reduce customer churn.

In the fiscal fourth quarter, Disney expects Disney+ Core subscribers to grow modestly. The company remains optimistic projecting profitability of the combined streaming businesses to improve in the fourth quarter of fiscal 2024, with both Entertainment DTC and ESPN+ expected to be profitable in the quarter.

However, DIS is likely to have suffered from a persistent decline in Linear TV revenues, which is expected to have negatively impacted Media and Entertainment Distribution revenues in the to-be-reported quarter.

Our model estimates for Entertainment revenues (which include Linear Networks, Direct-to-Consumer and Content Sales/Licensing and Other Revenue) are pegged at $9.44 billion, indicating a decrease of 0.8% year over year.

DIS’ true strength lies in its unparalleled portfolio of Intellectual Property (IP). From the iconic Marvel and Star Wars franchises to the beloved Disney princesses, Mickey Mouse and Pixar's timeless classics, the company owns the most powerful collection of IPs in the media industry. This wealth of IP is a significant asset, as it gives audiences an immediate connection to the content, reducing the risk associated with content investments.

The company's extensive library of IP not only fuels its studio operations but also underpins its entire business ecosystem, including streaming, linear networks and the profitable Parks, Experiences & Consumer Products segment.

In the Experiences segment, DIS expects that the demand moderation it saw in domestic businesses in the fiscal third quarter could impact the next few quarters. While the company is actively monitoring attendance and guest spending and aggressively managing the cost base, Disney expects the Experiences segment’s operating income to decline by mid-single digits compared with the prior year, reflecting these underlying dynamics as well as impacts at Disneyland Paris from a reduction in normal consumer travel due to the Olympics and some cyclical softening in China.

As we discuss the quarter under review, investors should pay close attention to key metrics, such as park attendance, per-capita spending and any announcements regarding expansion plans, particularly in international markets. The performance of this segment might have provided a strong foundation for Disney's overall growth trajectory.

Our model estimate for the Experiences segment (renamed from Disney Parks, Experiences and Products) revenues is $9.13 billion, indicating 12% growth year over year.

Despite experiencing strong demand at Disney Cruise Line in the quarter under review, results in the fiscal fourth quarter are likely to reflect pre-launch expenses for Disney Adventure and Disney Treasure.

Price Performance & Valuation

Shares of DIS have returned 11.7% year to date compared with the broader Zacks Consumer Discretionary sector’s growth of 10%. Disney operates in a fiercely competitive streaming market dominated by the likes of Amazon-owned Amazon Prime Video and Netflix, as well as the growing prominence of services from Apple, Comcast -owned Peacock and HBO Max.

Valuation-wise, Disney is trading at a premium with a forward 12-month P/E of 19.53X compared with the Zacks Media Conglomerates industry’s 19.11X, reflecting a stretched valuation. The company’s debt balance of $47.5 billion compares unfavorably with cash, cash equivalents and its current marketable investment securities balance of $5.95 billion.

Investment Considerations: Balancing Risk and Reward

Disney remains a prominent name in the investment world, long revered as a blue-chip stock and a staple in many portfolios. DIS' strength lies in its globally recognized brand and diverse intellectual properties spanning movies, TV shows, theme parks and merchandise. This diverse portfolio has historically given Disney a unique edge in captivating audiences worldwide and generating consistent revenue streams.

However, recent years have brought significant challenges, including disruptions in traditional media, pandemic impacts on theme parks and evolving consumer behaviors. These headwinds have prompted investors to reevaluate Disney's appeal, questioning whether the Magic Kingdom can maintain its former allure in an increasingly competitive and rapidly changing entertainment landscape.

Final Thought

Disney remains a diversified media and entertainment powerhouse with a strong brand and valuable intellectual property. Its theme parks and resorts continue to be a significant revenue driver, and the potential for growth in emerging markets of Asia remains promising. However, the accelerating trend of cord-cutting continues to put pressure on this segment, potentially offsetting gains in other areas.

For those considering how to play Disney stock in the fourth quarter of fiscal 2024, a nuanced approach may be warranted. Investors with a shorter investment horizon may want to exercise caution and wait for a better entry point, given the uncertainties surrounding the company's growth prospects and the competitive pressure it faces despite the enduring power of the Disney brand.

Why Haven't You Looked at Zacks' Top Stocks?

Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.

Today you can access their live picks without cost or obligation.

See Stocks Free >>

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

https://www.zacks.com

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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