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

The Walt Disney Company DIS is slated to report second-quarter fiscal 2025 results on May 7.The Zacks Consensus Estimate for revenues is pegged at $23.14 billion, suggesting modest growth of 4.78% from the year-ago quarter’s reported figure.The consensus mark for earnings has moved south by a penny to $1.18 per share over the past 30 days, indicating a decline of 2.48% year over year.Image Source: Zacks Investment ResearchFind the latest EPS estimates and surprises on Zacks Earnings Calendar.In the last reported quarter, Disney delivered an earnings surprise of 22.22%. The company’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 12.67%.The Walt Disney Company Price and EPS Surprise The Walt Disney Company price-eps-surprise | The Walt Disney Company QuoteEarnings Whispers for DISOur proven model does not predict an earnings beat for Disney this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.DIS has an Earnings ESP of -1.48% and a Zacks Rank #4 (Sell) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.Factors Shaping Upcoming ResultsAs Disney approaches its second-quarter fiscal 2025 earnings report, several concerning factors suggest investors may want to consider reducing exposure to the stock despite some positive developments in its streaming and content businesses.Disney's Entertainment segment saw strong performance in the fiscal first quarter, with the segment generating $1.7 billion in operating income, representing a substantial 95% increase year over year. However, this momentum may be difficult to sustain. In the fiscal second quarter, Disney expects its Sports segment operating income to be adversely impacted by approximately $100 million due to college sports costs, including the shift of three College Football Playoff games from the previous quarter into the fiscal second quarter and one additional NFL game. Disney also guided that the fiscal second-quarter will be unfavorably impacted by a write-off of more than $50 million as a result of exiting the Venu joint venture.Our model estimates for Entertainment revenues (which include Linear Networks, Direct-to-Consumer and Content Sales/Licensing and Other Revenues) are pegged at $10.31 billion, indicating an increase of 5.2% year over year.The Experiences segment, which includes Disney's theme parks and cruise line business, also faces challenges. For the fiscal second quarter, Disney Cruise Line pre-opening expenses of more than $40 million are expected to have weighed on results. For the full fiscal year, total pre-opening expenses related to Disney Cruise Line expansion are projected to reach more than $200 million. These expenses represent significant near-term costs without immediate revenue offsets.Our model estimate for the Experiences segment (renamed from Disney Parks, Experiences and Products) revenues is $8.93 billion, indicating 6.4% growth year over year.While Disney's streaming services appear to be gaining traction with the ESPN tile on Disney+ showing encouraging early indications and fiscal first-quarter Entertainment Direct-To-Consumer results reflecting improved profitability with nearly $300 million in operating income, continued subscriber growth remains uncertain. For the upcoming results, management expects a modest decline in Disney+ subscribers compared to the fiscal first quarter, suggesting ongoing challenges in maintaining subscriber momentum.The company's recent ventures into original programming for Disney+, such as the new daily sports show SC+ and the 24/7 Simpsons stream, represent strategic investments that may not yield immediate returns. Meanwhile, the recent transaction to combine Hulu+ Live TV assets with fuboTV creates additional integration complexity and execution risk.Disney's acquisition of a 70% stake in Fubo will require regulatory approvals and Fubo shareholder approval, introducing uncertainty around timing and potential regulatory hurdles. This transaction, while potentially beneficial long-term, represents one of several moving pieces in Disney's complex business transformation.From a financial perspective, Disney delivered strong consolidated first-quarter fiscal 2025 results with 44% growth in diluted earnings per share excluding certain items, 5% growth in revenues, and 31% growth in total segment operating income. However, these results might have set expectations too high for the fiscal second quarter, given the aforementioned headwinds.Looking forward, management continues to expect high-single digit adjusted EPS growth for fiscal 2025 compared to fiscal 2024, but achieving this target depends on successful execution across multiple fronts. Given the anticipated challenges and valuation concerns in the fiscal second quarter, investors should consider taking profits ahead of earnings and potentially re-establishing positions at more favorable entry points after gaining greater clarity on Disney's trajectory for the remainder of fiscal 2025.Price Performance & Stock ValuationShares of DIS have lost 16.9% year to date, underperforming the broader Zacks Consumer Discretionary sector and peers. Disney operates in a fiercely competitive streaming market dominated by the likes of Amazon AMZN-owned Amazon Prime Video and Netflix NFLX, as well as the growing prominence of services from Apple, Comcast CMCSA-owned Peacock and HBO Max.Year-to-Date PerformanceImage Source: Zacks Investment ResearchValuation-wise, Disney is trading at a premium with a forward 12-month P/S of 1.72X compared with the Zacks Media Conglomerates industry’s 1.39X, reflecting a stretched valuation. The company’s debt balance of $45.3 billion compares unfavorably with cash, cash equivalents and its current marketable investment securities balance of $6 billion.DIS’s P/E F12M Ratio Depicts Stretched ValuationImage Source: Zacks Investment ResearchInvestment Considerations Ahead of Q2 ResultsDisney's premium valuation appears increasingly difficult to justify ahead of the fiscal second-quarter results. While the company delivered strong performance in the previous quarter, several headwinds loom on the horizon. The Sports segment faces a $100 million impact from college sports costs and an additional $50 million write-off from exiting the Venu joint venture. Disney Cruise Line pre-opening expenses will add another $40 million burden. Management expects a modest decline in Disney+ subscribers, undermining streaming momentum. The Fubo acquisition introduces regulatory uncertainty, while competition intensifies across all business segments. Despite strategic investments in original programming and platform enhancements, DIS' current valuation doesn't adequately reflect these near-term challenges. Investors should consider reducing exposure before fiscal second-quarter earnings reveal the full impact of these operational headwinds.Final ThoughtDisney's near-term outlook appears challenging despite robust fiscal first-quarter results. With anticipated Sports segment headwinds of $150 million, Cruise Line pre-opening expenses, and projected Disney+ subscriber declines, the company faces multiple operational pressures. These factors, combined with Fubo acquisition uncertainties and intensifying competition across all segments, suggest the premium valuation is increasingly difficult to justify. Investors should consider reducing positions before the fiscal second-quarter results potentially reveal the full extent of these challenges.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 256 positions with double- and triple-digit gains in 2024 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Comcast Corporation (CMCSA): Free Stock Analysis Report Netflix, Inc. (NFLX): Free Stock Analysis Report The Walt Disney Company (DIS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks