The Walt Disney Company Is Not a Very Magical Investment Right Now

The Walt Disney Company (DIS) has lost a little magic this past month after its earnings report for the third-quarter fiscal year 2019 was a major flop. On August 6, the company announced earnings per share of $1.35 that fell far below the expected $1.75 – a 22.9% earnings miss. It was also a 27.8% year-over-year decline from the $1.87 per share earned a year ago.

In addition, sales of $20.25 billion missed expectations for $21.47 billion in sales. Although this was a 32.9% year-over-year increase from $15.22 billion, the company still reported a 5.7% sales miss.

Looking forward, sales are forecasted to rise 35.5%, while the company’s earnings are forecasted to decline 33.8%. In addition, analysts have lowered their estimates 26.9% in the past month. So, it does not look good for DIS.

Company management placed the blame squarely on the acquisition of Fox Entertainment, which it bought for a whopping $71 billion back in March. This buyout was to help DIS launch its Disney+ service and put the company in better position to take on Netflixs (NFLX) and Amazon’s (AMZN) streaming services. (More on that in a moment.)

The stock fell 5% post-earnings, and while it has bounced back by about 2%, it’s failed to regain any significant momentum. Shares continue to trade well below their 52-week high of $147.15.

Not surprisingly, the weak earnings and sales earn Disney a D-rating for its Fundamental Grade in the Portfolio Grader. You can see its report card below.

Interestingly, the stock still earns an A for its Quantitative Grade, as buying pressure remains strong. This is also why its Total Grade is a B. In my experience, buying pressure is the single most important variable when determining a stock’s health (even more so than the fundamentals).

However, I expect that buying pressure to start drying up soon and lower its Total Grade. Here’s why…

For one, the company has a big ESPN and Fox problem. NFL ratings remain low, and that hurts ESPN, which hurts Disney. And we’re already seeing the impact the Fox Entertainment acquisition is having, given that company management blamed it for the weak results!

While “Avengers: Endgame” made almost $3 billion in global sales in 13 weeks, “Dark Phoenix” only made $65 million in sales domestically and $186 million in sales internationally, which isn’t much considering the film’s $200 million budget.

Disney CFO Christine McCarthy stated that the “film studio had an operating loss in the third quarter of about $170 million, which was driven by the underperformance of theatrical titles including ‘Dark Phoenix,’ marketing for future releases and development expenses.”

Now, if DIS has a great holiday movie season, it could soar; but I doubt it. Rather than creating new plotlines, they’ve been making remake after remake. Why watch a “new” remake when you can go to Netflix or Amazon for an original one instead?

The Importance of a Solid Quantitative and Fundamental Grade

Disney’s mixed report card is a perfect example of why it’s so important to find companies with a strong Quantitative Grade and Fundamental Grade. This way, the stock will also have the fundamental support it needs to meander higher over the long term.

While DIS doesn’t fit the bill, my Growth Investor stocks sure do. All are highly rated, with strong sales and earnings momentum to drive them higher over time. These Growth Investor stocks are characterized by 16.7% annual sales growth and 65.6% annual earnings growth, as they did exceptionally well this earnings season.

Out of the 61 Growth Investor companies that reported so far, 54 stocks reported positive earnings surprises, four were in-line with estimates and only three missed earnings expectations. DexCom, Inc. (DXCM) reported a stunning 700% earnings surprise and has since hit several new 52-week highs, including a new 52-week high of $178.45 yesterday. That’s after hitting a 52-week high on Tuesday and one last Friday while the rest of the stock market was selling off!

Clearly, we’re investing in the crème de la crème of stocks, which are poised to do well over the long term. In fact, more than half of my Growth Investor stocks are profitable, which include five sitting pretty on triple-digit returns and 34 on double-digit returns. Given how volatile the market has been this August, that’s pretty impressive, if you ask me!

This is why I call them my Bulletproof stocks. They might not get as much hype as DIS is enjoying with its Disney+ launch. But they are poised to zig when the market zags and make good money for investors, no matter the current stock market environment.

If you missed out on my previous Bulletproof stock recommendations, that’s okay. On Friday, I’m adding three Bulletproof stocks in my Growth Investor August Monthly Issue. If you don’t want to miss out on that name, you can sign up here. I’m also going to share my latest Top 5 Stocks and what I see ahead in September.

During volatile market conditions, the best defense is a good offense. So if you have new money to put to work, I encourage you to check out my recommendations here.

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