Disney Shares Are Headed Upwards (Technical Analysis)

Summary:

• Disney shares have rebounded from summer lows, trading in the mid-90s, with the potential to surpass $100 due to strong Disney+ performance and blockbuster film releases.
• Successful releases like Deadpool & Wolverine and Inside Out 2 have bolstered DIS’s revenue, supporting future streaming and holiday sales.
• Expansion plans for Parks & Experiences, including new attractions and cruise ships, aim to drive growth despite recent margin weaknesses in this division.
• Risks include potential underperformance of upcoming films and continued consumer spending weakness, which could negatively impact Disney’s valuation and revenue.

Disney (NYSE:DIS) performed poorly through the heart of the summer, including in response to the earnings report it delivered in early August. Since the start of September, DIS shares turned themselves around, and are exiting the month on what appears to be the verge of breaking out. With Disney trading in the mid-$90s, shares continue to present reasonable value, with the strong potential to continue to appreciate into the end of 2024 and the start of 2025.

It now appears as though Disney made a bottom in the charts this summer in the high $80s, and shares are now primed to return above $100 per share. Reasons for Disney to continue their trend higher include better performance from Disney+, including improving ad-supported subscriptions and new series releases, as well as Disney has been benefitting from the successful release of Deadpool & Wolverine, which has already earned over $1.3 billion in global box-office sales. Disney also had tremendous success with Inside Out 2, which became the highest-grossing animated film ever, with over $1.5 billion in global box-office sales. These movies should continue to support Disney in the coming quarter, with Halloween, Christmas, and other holiday sales. They are also likely to support Disney+ subscriptions, as well as bring in further revenue from purchases and rentals. For example, Amazon already sells a Bonus X-Ray Edition of Inside Out 2 and has had pre-order availability for Deadpool & Wolverine. Streaming pay to rent options should be forthcoming.

Deadpool & Wolverine also established a strong case for a Gambit movie to soon be developed, among other potential reboots and associated series developments. Disney and Analysts must now re-evaluate unused and underutilized Marvel intellectual property that Disney might more effectively monetize in the near future. Further, the movie proved the case for Disney to develop more R-rated Marvel movies and series due to the clear showing of demand for such from its consumer base.

Disney has a fairly large and strong roster of theatrical releases coming into the end of 2024 and throughout 2025. Moana 2, is scheduled to open in theaters on November 27, and 2025’s titles should include Captain America: Brave New World, The Fantastic Four: First Steps, Tron: Ares, and Avatar 3, among several others.

On August 7, 2024, Disney reported its Q3 2024 earnings, where Disney’s Q3 occurs during the second quarter of the actual calendar year. Disney responded poorly to the report, with the primary reason for that poor response appearing to be that its Parks and Experiences division sustained weak margins. Disney is also likely to incur higher than initially expected costs in acquiring the 33% stake in Hulu that Comcast (CMCSA) owns. Actual pricing of the stake is a matter of appraisal by arbitration, where Comcast’s position on the matter would obligate Disney to pay it an additional $5 billion.

Disney noted that Parks and Experiences had a weakness for reasons including that some lower-income consumers were spending less, and also that many higher-income consumers were opting for international travel rather than visiting domestic options. Disney has been expanding its international Parks and Experiences, and recently opened Fantasy Springs within the Tokyo Disney Resort, and also Lookout Cay, in the Bahamas. The company is also expected to launch a new cruise ship, the Disney Treasure.

At D23, a biannual fan event that Disney holds, the company announced four additional new cruise ships, as well as some preliminary details about six new themed lands as expansions to its Parks. Some international developments included new Spider-Man attractions that are to be added to Disney’s parks in both Shanghai and Hong Kong, and the Paris park will get a new ride based on The Lion King.

Disney’s expansion plan announcement also included many additions to domestic parks. Disney plans on doubling its Avengers campus at the Disney California Adventure location in Anaheim, California, as well as a new Villains Land at Walt Disney World’s Magic Kingdom in Orlando, Florida. The California Adventure Park will also add a new Avatar-themed attraction. Disney also announced two new attractions for its Animal Kingdom park in Orlando, Florida, including Indiana Jones discovering and exploring a Maya temple. The other attraction will be based on Encanto. Disney also announced plans to develop a new land themed around Pixar’s Monsters, Inc. to be added to Hollywood Studios at the Walt Disney World Resort, and an expansion section within Frontierland at Magic Kingdom that will be based on Cars.

Disney also intends to develop a games and entertainment universe that will be connected to Fortnite. Disney previously invested $1.5 billion in the video game maker and game engine developer.

Disney shares now appear as though they bounced off of strong support in the high $80s, and have since rallied into the mid $90s. This level acted as support in both late 2022 and throughout the last quarter of 2023. This level was also in line with the pandemic bottom that Disney made in the spring of 2020 and was also highly supportive between 2015 and 2020. Disney spent those five years stuck in a trading range between about $85 and $120 per share. That is also where Disney shares have traded since 2022.

It is also visible on the above chart that virtually every time Disney got to its current trading level, it soon after climbed to at least $100, if not higher. In fact, on several occasions, the company quickly gapped up from less than $100 to around or above $120 in short order. This occurred in July/Aug of 2022, Jan/Feb of 2023, and Feb/March of this year. A similar jolt higher could be forthcoming.

Risks

Risks to Disney include the failure of it to perform to expectations. Disney has multiple films coming out in the next several quarters. While it has had a few successful releases this year, that is no guarantee of future success. A poor-performing film, or potentially multiple poorly received ones released in succession, would undoubtedly be bad for valuation. Disney’s model also requires a continuing flow of strong new content releases that can promote new streaming subscriptions, new park attractions, and merchandising. Content that does not resolve with the audience harms that process and is one of the key risks to Disney.

Another risk to Disney is that of continued weakness from its core consumer base. While a trip to one of Disney’s parks is not necessarily a luxury experience, it is a costly vacation for a family compared to the vast majority of domestic destinations. It is also possible that those attending Disney’s parks will spend less on merchandise, food, lodging, and premium experiences. Such downgrading, or a lack of upgrading, would have a negative effect on Disney’s revenue and operating margins.

Conclusion

Disney’s theatrical success in 2024 is likely to support streaming numbers in the coming quarters, as well as Halloween, Christmas, and other holiday sales through the end of the year. Disney also has the potential to have further theatrical and streaming success in late 2024 and early 2025. Similarly, Disney’s Parks & Experiences division should benefit from new venues and increased pricing, and domestic advertising should benefit from significant political campaigning in this quarter and continuing into November.

Disney went through what now appears to be a capitulatory downtrend this spring and summer that took shares to their long-term support. Disney has since bounced off of that support and begun to move higher. Disney shares have performed exceedingly well over the last month and currently appear primed to move higher. This move upward may be in the form of a gap up and could occur in response to quarterly earnings in early November, among other potential catalysts, such as analyst upgrades and/or increased price targets.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of DIS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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