What you need to know

Disney (DIS) is one of the most followed stocks by visitors to Zacks.com lately, so it might be a good idea to check out some of the factors that could affect the stock’s near-term performance.

Shares of this entertainment company have returned 3.5% over the past month versus a change of 2% for the Zacks S&P 500 Composite. The Zacks Media Conglomerates industry, which includes Disney, has gained 2.6% during this period. The key question now is: where could the stock go in the near future?

While press releases or rumors about a significant change in a company's business outlook usually cause the stock to “trend” and result in an immediate price change, there are always some fundamental facts that ultimately determine the buy or hold decision.

Revisions to earnings estimates

Here at Zacks, we prioritize evaluating a company's change in future earnings forecast above all else. That's because we believe the present value of its future earnings stream determines the fair value of its stock.

We essentially study how sell-side analysts who cover the stock adjust their earnings estimates to reflect the impact of the latest business trends. And when earnings estimates for a company rise, the fair value of its stock increases. A higher fair value than the current market price stimulates investors' interest in buying the stock, leading to an increase in its share price. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For the current quarter, Disney is expected to report earnings of $1.11 per share, representing a change of +35.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.3% over the past 30 days.

For the current fiscal year, the consensus earnings estimate of $4.91 suggests a change of +30.6% from last year. Over the past 30 days, this estimate has changed by -0.1%.

For the coming fiscal year, the consensus estimate of $5.13 represents a change of +4.6% from Disney's expected earnings a year ago. Over the last month, the estimate has changed by -0.2%.

Our proprietary stock evaluation tool, the Zacks Rank, has a strong outside-audited track record and offers a more conclusive picture of a stock's near-term price performance by effectively harnessing the power of earnings estimate revisions. Due to the magnitude of the recent consensus estimate change, as well as three other factors related to earnings estimates, Disney is rated a Zacks Rank #3 (Hold).

The story continues

The following chart shows the development of the company's consensus estimate for earnings per share over the next 12 months:

12 months EPS

Forecasted sales growth

While earnings growth is arguably the best indicator of a company's financial health, nothing will happen if a company can't grow its revenue. After all, it's nearly impossible for a company to grow its profits over a sustained period of time without increasing its revenue, so it's important to know a company's potential revenue growth.

At Disney, the consensus revenue estimate of $22.49 billion for the current quarter suggests a change of +5.9 percent from last year. The estimates of $91.26 billion and $94.7 billion for the current and next fiscal years suggest changes of +2.7 percent and +3.8 percent, respectively.

Latest reported results and surprise history

Disney reported revenue of $23.16 billion in the last quarter, a change of +3.7% year over year. Earnings per share for the same period are $1.39, compared to $1.03 last year.

Compared to the Zacks Consensus Estimate of $22.91 billion, the reported earnings represented a surprise of +1.06%. The EPS surprise was +15.83%.

The company has beaten consensus earnings per share estimates in each of the last four quarters. The company has beaten consensus revenue estimates twice during that period.

Evaluation

Without considering the valuation of a stock, no investment decision can be efficient. To predict the future price movement of a stock, it is crucial to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company's growth prospects.

Comparing a company's current valuation multiples, such as the price-to-earnings ratio (P/E), the price-to-sales ratio (P/S) and the price-to-cash-flow ratio (P/CF), with its own historical values ​​helps determine whether the stock is fairly valued, overvalued or undervalued. Comparing the company to comparable companies using these parameters also gives a good sense of the appropriateness of the share price.

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

Disney gets a C grade on this score, meaning the company trades on par with its peers. Click here to see the scores of some of the valuation metrics that led to this rating.

Diploma

The facts discussed here and much more information on Zacks.com could help you decide whether the market hype surrounding Disney is worth paying attention to. However, the Zacks Rank #3 suggests that the company could perform in line with the broader market in the near future.

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The Walt Disney Company (DIS): Free Stock Analysis Report

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