SOUND BUT UNEXCITING FUNDAMENTALS Consensus is favorable on aggregate: Buy recommendation, +12.75% target upside. Numbers are compelling (5-yr rev growth +6.63% and ROE +20.35%) but growth has been slipping, esp. in TV. Valuation is un-demanding at a P/E of 17x (now less expensive than the market?)
TECHNICALLY ON A DOWNTREND BUT COULD BE REBOUNDING DIS has been on a downtrend since the double-top of Aug/Nov 2015. The long-term (M chart) is still clearly negative. The medium-term (W) shows a series of negative cross-overs and a H&S formation. But lately the stock has been rebounding with the market and the short-term picture (D) is turning positive. A close above the 97.00 (MA200) would confirm the positive turnaround. A close below 90.00 would confirm the negative trend and potentially take us towards the H&S target of 84.00.
EARNINGS AND GUIDANCE WILL BE A KEY CATALYST What could propel the stock higher are the earnings and guidance from DIS.
STRATEGY: 0-COST EXPOSURE TO UPSIDE IN CASE OF BREAKOUT Buy Nov 18 2016 $98 call to play the breakout = 0.34/share Sell Nov 18 2016 $90 put to finance the synthetic long = 0.33/share Best-case scenario: Stock breaks out ==> Make $ on the call or convert Worst-case scenario: Stock tanks ==> Go long a quality long term holding close to the 52w low.
Comment
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So the numbers are out and DIS disappoints again on the back of weak ESPN numbers. Expect the stock to trade slightly lower and to remain within our in-the-money band ($90-$98), in which case the best thing to do will be to do nothing. Let's see how this looks at the open.
Trade closed: target reached
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Call option in the money. Unwind both legs of the options here and make an indicative 0.83/share.