Time for Walt Disney to interrupt the decline

Walt Disney has presented the quarterly report on May 11th after the trading close.

The results have turned out to be slightly worse than forecasts, resulting in a price drop of 5,5%. However, losses were reduced to 1% by the yesterday trading close.

Possibly, market participants have revised their estimates of the financial position of the company and switched to buying, especially since the shares fell by 50% from their last year maximum and a potential upward rebound could bring good profits.

Revenue grew by 23% to $19.25 billion ($20,05 billion was expected). Earnings per share came to $1,08 also falling short of investors' expectations of $1,19. But at the same time, revenues from amusement parks are actively recovering - the growth more than 2 times to $6,65 billion. The fading of the coronavirus pandemic will lead to a further increase in revenue from this segment of the Walt Disney business.

The streaming service Disney+ is also successfully developing, adding 7,9 million subscribers in the quarter – compared to the 200,000 drop in Netflix subscribers, the results are simply excellent.

While the service is unprofitable (because of investing in the production of new films and series), but streaming for Walt Disney is one of the business segments which are quite capable of supporting income from film distribution and amusement parks, and this is the main competitive advantage compared to Netflix.

General market pessimism, fueled by negative Netflix reporting, has led to a fall in Walt Disney shares by 25% over the past month. At the same time, the latest wave of declines brought shares to the spring 2020 minimums, when film distribution was stopped and amusement parks were closed. It looks like the “bears” have overdone the sales, and a bounce up attempt can be made in the coming days. The “hammer” on the chart and the RSI, which has come out of the oversold zone upwards, are also in favor of the rise. 

The first growth target is a level of 111.

The following trading strategy:

Buy Walt Disney at the current price. Take profit – 111. Stop loss – 99,5.

Also, traders, at their discretion, instead of a fixed Stop loss, can use Trailing stop when the price moves up.