Q1 Preview: Analysts Believe Disney (DIS) May Not Have Blockbuster Quarter

Shares of The Walt Disney Company (NYSE: DIS) are trading higher Tuesday heading into its first-quarter 2012 earnings release, scheduled for release after the market closes.

The Street sees Disney reporting earnings of 72 cents per share on revenue of $11.18 billion. Such earnings would be a 6 percent gain over 68 cents reported in the same period last year.

Shares gained 26.4 percent to $37.50 over the quarter and are 8.3 percent higher to $40.63 since. Disney has traded within a range of $26.19 to $44.34 over the last 52 weeks, which compares with Street views expecting a rage of $38 to $50 and an average price target of $43. Data from Bloomberg has 17 analysts with Buy rating on Disney, 16 at Hold, and none with a Sell.

Volatility in Disney options is heightened to about 29.1 percent, as might be expected ahead of a quarterly report. Front month call volumes are just about double those of puts for at-the-money options. Call open interest also remains at higher levels than puts.

Analyst Comments

• Goldman Sachs sees EPS of 70 cents, implying Parks revenue growth of 7 percent and cable ad growth of 4 percent. Goldman noted "Parks growth likely decelerated in the quarter due to less price promotions."
  
  On cable ad improvements, the firm stated, "Two less BCS games, MNF ratings declines (-10% yoy) and a weak scatter market will hold back cable ad growth in 1Q; we model 4 percent yoy. We expect the company to guide to an acceleration in 2Q driven by stronger scatter demand, 2 more BCS games and 11 more NBA games yoy; we model 11 percent yoy growth in 2Q."
  
  
• Deutsche Bank sees revs of $11.285 billion, 1 percent of EBIT growth, and earnings of 69 cents per share. The firm commented, "Cable Nets remain healthy with 19 percent EBIT growth (11 percent ex-deferral benefit) and Parks should be solid given pricing leverage during sold-out holiday periods (7 percent EBIT growth). Looking forward, the national TV ad market is still healthy in F2Q while we expect its next major film John Carter will require a $50+m write-down and cruise ship bookings could have moderated since the sinking of the Concordia."
  
  Deutsche gave six reasons it's bullish on Disney for long-term growth:
  1. Disney / Comcast deal underwrites healthy cable network revenue growth and margin expansion the rest of this decade; other pay TV providers will have to fall into line behind Comcast;
     
     
  2. Park capex should fall in FY13 sparking a multi-yr rise in park ROIC including margin expansion as the new projects come online and the negative, artificial pension carry subsides as interest rates stop falling;
     
     
  3. Broadcast should benefit with a $500m ramp in retrans/reverse retrans the next 5 yrs and recent ratings trends have been more favorable;
     
     
  4. $200m of Interactive losses should subside as amortization rolls off;
     
     
  5. Marvel profitability should jump up in Film (self-distribution of films), Interactive (contract renewals for video game rights), and Consumer Products (Spider-Man merchandise profits due to Sony deal & greater integration with Disney, in particular int’l); and
     
     
  6. the soft CY12 film lineup ramps to a strong CY13 line-up.

Wells Fargo is modeling EPS of 71 cents and revs of $11.299 billion. Into the numbers, the firm sees weaker ESPN ratings, down 18.5 percent among the 18 - 49 age group and 8 percent among total households, as well as weaker ABC viewership.

On Parks and Resorts, Wells Fargo sees potential upside from the cruise segment, though occupancy trends have been mixed.

JPMorgan sees EPS of 69 cents om the quarter with revs of $10.953 billion. JPMorgan echoed Wells Fargo in seeing some weakness at ESPN and ABC. The move of 2 BCS games into the second quarter of 2012 for Disney isn't helping, JPMorgan said.

JPMorgan thinks park attendance trends held up, but overall spending will be lower.

For Studios, the firm noted Disney's light slate, including just The Lion King 3D and The Muppets as two originals. Further, product sales should be lighter due to the tough comps from Tangled last year.Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Disney's past performance at Streetinsider's Disney's Income Statement.

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