Disney Shares Surge After Entertainment Reshuffle

Dow competent Walt Disney Company (DIS) gained over 5% in extended-hours trading Monday after the media giant revealed its plans to reorganize its entertainment and media business, focusing on streaming content.

The company said it will accelerate its direct-to-consumer strategy to centralize its media businesses into a single organization that oversees content distribution, ad sales, and Disney+. The move comes as the global COVID-19 pandemic has crushed the company’s theatrical business and resulted in lackluster movie theater sales. Disney recently delayed its highly anticipated Pixar film “Soul,” which it now plans to screen on Disney+ later this year.

“I would not characterize it as a response to Covid. I would say Covid accelerated the rate at which we made this transition, but this transition was going to happen anyway,” Disney’s CEO Bob Chapek told CNBC’s “Closing Bell” program in relation to the restructuring.

As of Oct. 13, 2020, Disney stock has a market capitalization of over $200 billion and trades down 13.59% on the year. However, since mid-July, the shares have gained nearly 5%. From a valuation standpoint, the company trades at around 48 times projected earnings, substantially above its five-year average multiple of around 21 times.

Wall Street View

In late August, Citi analyst Jason Bazinet raised the bank’s price target on Disney to $150 from $135 and maintained a ‘Buy’ rating on the stock. Even before Disney’s announcement yesterday to accelerate its direct-to-consumer business, Bazinet saw “robust growth” in the segment. The analyst also expects a measured recovery within the company’s core businesses of Parks, Studio, and Media Networks.

Elsewhere on Wall Street, sentiment remains mostly bullish. The stock receives 14 ‘Buy’ ratings, 1 ‘Overweight’ rating, and 10 ‘Hold’ ratings. Price targets range from as high as $163 to as low as $103. The shares currently trade at a 10% discount to the 12 -month median consensus target of $138 as of yesterday’s close.

Technical Outlook and Trading Tactics

After rallying more than 70% between mid-March and early September, Disney shares have undergone a month-long retracement. They currently find support from the 200-day simple moving average (SMA) and a multiyear horizontal trendline.

Momentum appears to be once again turning bullish, with the moving average convergence divergence (MACD) indicator crossing above its trigger line to generate a buy signal. Furthermore, the 50-day SMA moved back above the 200-day SMA last week – a technical sign that often marks the start of a new uptrend. Those who buy the stock at these levels should look to book profits near significant overhead resistance at $146.50, with a stop placed beneath this month’s low at $120.61 to protect trading capital.