Disney Stock Has a Lot to Prove This Week

The company famous for delivering storybook endings is hoping to deliver one to its shareholders this week. Walt Disney (DIS 2.84%) reports financial results for its fiscal third quarter on Wednesday, and investors can use some good news. Disney shares are down 31% this year, making it the worst performer among them Dow Jones Industrial Average (^DJI 0.07%) components in 2022.

There are naturally a lot of moving parts to the media giant’s empire. Disney’s not firing on all cylinders these days, but it could show just enough this week to win back the market’s respect. Let’s take a closer look at how the House of Mouse is holding up heading into Wednesday afternoon’s telltale report.

Image source: Disney.

When you wish upon a chart

At first glance, expectations would seem to be high for this week’s financial update. Analysts are modeling $2.49 billion in revenue for the fiscal third quarter, a 20% jump from where it landed last year. Bottom-line forecasts are even more robust, as Wall Street pros are targeting adjusted earnings per share to climb 45% to $1 a share.

Disney doesn’t typically sport this kind of heady growth, but we’re lapping depressed results from a year earlier. The original Disneyland theme park in California wasn’t even open at the start of last year’s fiscal third quarter. Now Disney’s domestic gated attractions are booming. Disney+ keeps gaining subscribers. Your local multiplex is busy again.

There are headwinds, of course. Media networks are a big part of Disney, with ABC, Disney Channel, and its majority-owned ESPN juggernaut. Folks are cutting the cord from costly cable and satellite television plans where Disney is a top receiver of carriage rights payments. The economic downturn is starting to cool ad spending, another major part of the media networks model. On the theatrical release front, folks are going back to the movies, but one of Disney’s most anticipated releases of the fiscal third quarter — Lightyear — fell well short of box office expectations.

The rising US dollar is also going to take a toll. A lot of its Disney+ growth lately has come from overseas. Disney also owns its theme park resort in Paris and sizable minority stakes for its attractions in Hong Kong and Shanghai. Those transactions will bear the brunt of the stronger dollar, and that’s before considering that the currency movements are making it harder for international visitors to check out Disney’s domestic parks just after restrictions were eased earlier this year.

Gas prices are on the rise, weighing on domestic visitors. We’ve also seen spending shift to food and other essentials, and that could ding all of Disney’s businesses. Analysts are adjusting for the new normal. Just a week ago Wall Street pros were projecting $2.6 billion in revenue, but the profit target remains intact. With a wide array of interests and entertainment niches where it’s a leading tastemaker, Disney is a widely followed media stock. A lot of investors — not just mouse-eared Disney ones — will be watching Wednesday afternoon’s report.

Rick Munarriz has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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