Walt Disney Breaks Out To All-Time High

Dow component Walt Disney Co. (DIS) is trading at an all-time high on Wednesday after Wells Fargo upgraded the stock to ‘Overweight’. The rally completes an historic 150 point round trip that started from the November 2019 high at 153.41. However, quarterly profits and revenue have crashed since that time due to the COVID-19 pandemic, which forced partial or total shutdowns of worldwide movie production, theme parks, and cruise ship lines.

Easing Pandemic Headwinds

Movie production has sprung back to life but no one knows if patrons will be ready to watch flicks in closed ventilation systems after the distribution of vaccines. Meanwhile, quarterly performance has relied on the huge success of the streaming service, which now boasts more than 70 million subscribers worldwide. Even so, Disney reported a 23.1% year-over-year revenue decline in the third quarter, highlighting dependence on blockbusters through the Star Wars, Pixar, and Marvel franchises.

Wells Fargo analyst Steven Cahall pounded the table on Wednesday, insisting that Disney “is set to complete its transformation into a global streaming content company including the deep Disney brands (Disney+), general entertainment (Star, Hulu, Disney18+) and eventually global sports (ESPN+). We expect global subscribers to go from 117 million today to conservatively 250-300 million in about 5 years. Global content spending would be greater than $22 billion (excluding sports) with DTC revenues of greater than $25 billion.”

Wall Street And Technical Outlook

Wall Street consensus has surged since the first quarter downdraft, with a ‘Strong Buy’ rating based upon 16 ‘Buy’ and 3 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $136 to a Street-high $182 while the stock has opened Wednesday’s U.S. session about $7 below the median $162 target. There should be plenty of upside with this humble configuration.

The stock has completed a V-shaped pattern off the deep March low and broken out to an all-time high. However, accumulation-distribution indicators have not kept up with bullish price action and are situated below both 2019 and September 2020 peaks. This establishes a strong bearish divergence that raises odds for a failed breakout and downside into the November gap between 128 and 134, with the lower end offering a potential low-risk buying opportunity.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.