Option Trade 
Walt Disney Co (NYSE:DIS) Calls 
Tuesday, August 04, 2015

**OPTION TRADE: Buy the DIS Oct 2015 125.000 call (DIS151016C00125000 at approximately $2.40. Place a protective stop loss at $0.95, and a pre-determined sell at $5.00.

by Ian Harvey

August 04, 2015


Walt Disney Co (NYSE: DIS), together with its subsidiaries and affiliates is a diversified international family entertainment and media enterprise with five business segments: media networks, parks and resorts, studio entertainment, consumer products and interactive media, is scheduled to report after the market closes today, Tuesday, 4th August. The company is expected to deliver its strongest quarter ever. The Street is modeling consensus earnings of $1.39 per share on revenue of $13.169 billion, while the crowd is projecting EPS of $1.45 on sales of $13.256 billion.

These figures compare to EPS of $1.28 on revenue of $12.466 billion reported in the same quarter last year and EPS of $1.23 on sales of $12.461 billion registered last quarter.

The company's movie studio and theme park businesses are expected to boost revenue growth. In addition, the company has seen a success at the box office this year with movies including Avengers: Age of Ultron and Inside Out. In addition, Star Wars: The Force Awakens is set to debut Dec. 18.

Also, just Monday, DIS saw its price target lifted to $130 from $120 at Stifel – more about that in the analysts section.

Technical Details

Walt Disney closed trading yesterday at $121.11.

The stock’s 50 day moving average is $116.05 and its 200 day moving average is $108.01.

Walt Disney has a 52 week low of $78.54 and a 52 week high of $121.73.

The company has a market capitalization of $203.61 billion and a P/E ratio of 25.82.


Previous Earnings

Walt Disney last issued its quarterly earnings data on Tuesday, May 5th. The entertainment giant reported $1.23 EPS for the quarter, beating the consensus estimate of $1.11 by $0.12.

During the same quarter last year, the company posted $1.11 earnings per share. The firm had revenue of $12.46 billion for the quarter, compared to the consensus estimate of $12.20 billion. Walt Disney’s quarterly revenue was up 7.0% on a year-over-year basis. On average, analysts expect Walt Disney to post $5.05 EPS for the current fiscal year and $5.72 EPS for the next fiscal year.

Future Earnings

Analysts o see margin expansion, targeting earning per share to climb 11% during the period. That is where Disney could impress, especially given its tendency to land ahead of Wall Street's profit targets more often than not during CEO Bob Iger's run.

The Walt Disney Company is expected to report double-digit Q3 profit growth Tuesday despite a major box-office misfire.

The Walt Disney Company has certainly had its share of troubles over the last three months. “Tomorrowland,” the big-budget flop released on May 22, could cost the company $140 million. ESPN, Disney’s hugely profitable sports juggernaut, lost 16 percent of its core demographic. Even “Frozen” fever, once expected to snowball forever, is finally starting to cool off.

Despite it all, however, Disney is expected to coast through its eighth consecutive quarter of double-digit profit growth when it reports third-quarter 2015 earnings, thanks to higher programming fees for its TV networks, strong attendance at its theme parks and the unrelenting hit-making capacity of its Marvel and Pixar movie units.

It’s all more proof that the Mouse House may never run out of its trademark magic.

Why Walt Disney?

Japanese retailer Uniqlo is expanding its partnership with Walt Disney Co, allowing the former to incorporate characters from movies such as "Frozen" and "Toy Story."

The Dow component hit a record high yesterday of $121.73 before settling at $121.11 -- bringing its year-to-date advance to 27.6%. Not surprisingly, bullish bets have been popular in the options pits.

Despite the disappointing performance of “Tomorrowland” -- Disney’s latest attempt to turn one of its theme-park attractions into a billion-dollar movie franchise -- the company’s Filmed Entertainment unit still enjoyed a stellar quarter at the box office. Marvel’s “Avengers: Age of Ultron” has taken in a domestic haul of $456.6 million since it was released on May 1, making it the second-highest-grossing film of the year behind Universal’s “Jurassic World.” The Pixar comedy “Inside Out,” released on June 19, took in another $324 million.

In fact, Hollywood is having a strong summer overall. Revenue from Disney releases is expected to grow 48 percent compared to the same period last year, according to an analysis of box-office data from media analyst Michael Nathanson.

There's a lot to like about Walt Disney Co.: TV, movies, theme parks, and a deep well of great characters and franchises it can leverage for decades to come – they have diversified extremely well.

Although it executes well across the board, it's not dependent on one business segment to carry the load.

Disney's studio movie productions draw the big headlines. Ant-Man's box-office success in its opening weekend -- a surprise to many, given the quirkiness of this particular superhero -- is a great example. And of course, the Star Wars franchise seems to generate ongoing headlines in anticipation of "Star Wars: Episode VII."

But those movies, and all the other motion pictures the company produces, generate just a small amount of the money the mouse and company rake in every year.

In the last fiscal year, nearly half of the company's revenue -- 46% -- came from its media networks segment. That includes ESPN and its offspring of TV and radio networks, ABC, and Disney TV and radio properties.

All of its movies, meanwhile, pulled in less than a third of that -- about 14.9% of company revenue.

That diversification is important because it prevents any single occurrence from hitting the overall top or bottom line too hard. That helps to keep the knee-jerk reactions to the headline number at bay.

And Disney is a business that has some cyclical components, likes its movies and theme parks, where revenue can be lumpy and vary from year to year.

This past quarter gave us a good glimpse at the power of Disney's diversification. Overall, earnings were up 11% over the prior-year quarter. That came despite it being a rough three months for a few of Disney's largest segments.

Analysts Opinions

It's a good sign when a Wall Street pro warms up to a stock the day before the company reports quarterly results. Stifel Nicolaus boosted its price target for Walt Disney on Monday morning.

The move raises Stifel Nicolaus' price goal from $120 to $130 and reiterates its bullishness. The boost makes sense. The stock closed at exactly $120 on Friday, hitting yet another all-time high earlier in the day. It's hard to have a bullish rating on a company when the target price is exactly where it's perched. However, hitting a price target could also be an appropriate time for an analyst to lower a stock's rating using the argument that it's now fully valued. Stifel Nicolaus doesn't see it that way, and now it's pointing to $130.

Stifel Nicolaus isn't alone. A few companies have beefed up their convictions on the family entertainment giant. Topeka Capital Markets and Atlantic Equities upgraded shares of Disney last month, bumping neutral ratings up to bullish ones.

The Stifel Nicolaus note stands out -- even if it's just a price target update -- largely because the move is being made the day before Disney reports financial results for its fiscal third quarter. An analyst has to be fairly well convinced that a publicly traded company is about to deliver a blowout report in making a move like this.

In the report Stifel noted the tailwinds as:

1. Domestic market: An almost 100 percent increase in the number of IMAX screens since 2009, while 3D screens nearly quadrupling.

2. International market: Significant increase in screen and box office growth in major international markets, including China, Russia and Latin America.

Also, RBC Capital increased their target price on shares of Walt Disney from $120.00 to $130.00 in a research note issued on Monday. The brokerage presently has an “outperform” rating on the entertainment giant’s stock. RBC Capital’s price target points to a potential upside of 8.33% from the stocks previous close.

The company has also been the subject of a number of other research reports:-

• Topeka Capital Markets upgraded shares of Walt Disney from a “hold” rating to a “buy” rating and boosted their price target for the company from $105.00 to $138.00 in a report on Friday, July 24th.

• Barclays lifted their price target on shares of Walt Disney from $94.00 to $100.00 and gave the stock an “equal weight” rating in a research note on Monday, July 20th.

• Finally, Needham & Company LLC reiterated a “hold” rating on shares of Walt Disney in a report on Monday, July 20th.

Six investment analysts have rated the stock with a hold rating and eight have issued a buy rating to the company. The company currently has a consensus rating of Buy and a consensus price target of $46.73.

Harvey’s Options Volatility Indicator


It should also be noted that Disney has a history of surpassing estimates. So, a beat this quarter would come as no big surprise.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the DIS Oct 2015 125.000 call (DIS151016C00125000 at approximately $2.40. Place a protective stop loss at $0.95, and a pre-determined sell at $5.00.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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