Disney's Q2 Earnings Coming Up: Time to Buy, Sell or Hold the Stock?

Core Viewpoint - The Walt Disney Company is expected to report second-quarter fiscal 2025 results on May 7, with revenue estimates at $23.14 billion, reflecting a 4.78% year-over-year growth, while earnings per share (EPS) are projected to decline by 2.48% to $1.18 [1][2]. Financial Performance - The consensus estimate for the current quarter's EPS has decreased by a penny over the past 30 days, indicating a downward trend [2]. - In the last reported quarter, Disney achieved an earnings surprise of 22.22%, with an average surprise of 12.67% over the last four quarters [2]. Earnings Expectations - Current estimates show an Earnings ESP of -1.48% and a Zacks Rank of 4 (Sell), suggesting a low probability of an earnings beat this time [3]. - Management anticipates high-single digit adjusted EPS growth for fiscal 2025 compared to fiscal 2024, contingent on successful execution across various fronts [13]. Segment Performance - The Entertainment segment reported strong performance in the fiscal first quarter, generating $1.7 billion in operating income, a 95% increase year-over-year, but faces challenges in sustaining this momentum [5]. - The Experiences segment, including theme parks and cruise lines, is expected to incur over $40 million in pre-opening expenses for Disney Cruise Line, with total expenses projected to exceed $200 million for the fiscal year [7][8]. - The streaming services, particularly Disney+, are experiencing uncertainty with expected subscriber declines compared to the fiscal first quarter [9]. Strategic Developments - Disney's recent ventures into original programming for Disney+ and the acquisition of a 70% stake in Fubo introduce both strategic opportunities and execution risks, with regulatory approvals required for the Fubo transaction [10][11]. - The combination of Hulu+ Live TV assets with fuboTV adds complexity to integration efforts [10]. Valuation and Market Position - Disney shares have declined 16.9% year-to-date, underperforming the broader Zacks Consumer Discretionary sector [14]. - The company is trading at a forward 12-month P/S ratio of 1.72X, higher than the industry average of 1.39X, indicating a stretched valuation [16]. - Disney's debt stands at $45.3 billion, contrasting unfavorably with its cash and cash equivalents of $6 billion [16]. Investment Considerations - The premium valuation of Disney appears increasingly difficult to justify given the anticipated headwinds in the Sports segment, Cruise Line expenses, and subscriber challenges in streaming [19][20]. - Investors may consider reducing exposure to the stock ahead of the fiscal second-quarter results to mitigate potential risks associated with operational pressures [22].