• Walt Disney unveils earnings before market’s opening bell on August 7

• Solid revenue and profit growth is expected despite recent stock selloff

• Valuation is currently at its lowest levels since the Covid-19 outbreak

Flat in the year despite an impressive start

Although the year started with the best auspicious signs for Disney, which were also reinforced by a very strong Q1 earnings report, things turned ugly very quickly. Increasing concerns over the firm’s advertising business growth coupled with a series of disappointing movie productions have triggered a steep selloff in the firm’s stock. In actual numbers, markets are projecting a whopping 66% year-on-year decrease in Disney’s advertising revenue for the second quarter.

In April, Disney’s stock was more than 35% higher compared to the start of the year, largely outperforming major US benchmarks. However, the combined pessimism has led to the stock erasing all of its 2024 gains, trading essentially flat in the year ahead of its Q2 earnings. On the bright side though, the firm’s theme parks appear to be able to shoulder the burden so far, with Disney’s traditional business expected to grow 6.5% on an annual basis.

Not great, not terrible

The entertainment powerhouse is set to have a robust quarter even though the advertising segment is forecast to receive a heavy blow. Specifically, Disney is anticipated to post revenue of $23.04 billion for the second quarter, according to consensus estimates by LSEG IBES, which would represent a year-on-year increase of 3.2%. Moreover, earnings per share (EPS) are projected at $1.19, marking a 15.62% jump on an annual basis.

Valuation reflects pessimism

Disney has been facing a slowdown in its streaming segment, while its latest movies have not been a success either. Given that its growth segments are clearly lagging its core business, which includes its theme parks and their attractions across the globe, investors have started to adjust the firm’s valuation to lower levels.

Disney has been trading with a considerable discount against the S&P 500, at its lowest multiples since the pandemic outbreak shut down its on-site operations. Specifically, the 12-month forward price-to-earnings ratio, which denotes the dollar amount someone would need to invest to receive back one dollar in annual earnings, currently stands at 17.5x versus the S&P 500’s multiple of 20.8x.

Stock posts death cross ahead of earnings

From a technical perspective, Disney’s stock has been in a steady decline since its 2024 peak in April, finding support near its January 2024 lows around $89.00. Meanwhile, the 200-day simple moving average (SMA) completed a death cross with the 50-day SMA for the first time since January 2024, further darkening the technical picture.

If earnings disappoint, the stock could find support at the recent six-month low of $89.20. Lower, the December 2022 bottom of $84.00 may provide downside protection.

Alternatively, should Disney beat estimates, the stock price may advance towards the November 2023 peak of $96.50. A violation of that zone could pave the way for $99.30, which is the lower end of a positive price gap registered in February.