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Disney ETFs in Focus Ahead of Q2 Earnings

Global media and entertainment company The Walt Disney Company DIS is set to release second-quarter fiscal 2021 results on May 13, after market close. The company has lost nearly 1.8% in the past three months.

Let’s take a look at this entertainment giant’s fundamentals ahead of its earnings release.

Inside Our Methodology

Disney has a Zacks Rank #3 (Hold) and an Earnings ESP of +46.11%. According to our surprise prediction methodology, the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock with a positive Earnings ESP increases the odds of an earnings beat. Meanwhile, a Zacks Rank #4 (Sell) or 5 (Strong Sell) stock is best avoided going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Disney’s earnings estimates were revised downward over the past 30 days for the soon-to-be-reported quarter. It is expected to see an earnings decline of 53.3% year over year along with a 10.6% fall in revenues. Disney’s earnings surprise history is robust with the company delivering an earnings surprise of 83.2% on average, with earnings beats in three of the last four quarters. The stock belongs to a bottom-ranked Zacks Industry (bottom 49%) and has a Growth Score of D.

What to Watch?

The coronavirus outbreak has so far largely impacted consumer spending. Major retailers, restaurants and hotels, theme and amusement parks plus cruises in the United States had to shut down operations, both domestically as well as internationally.

Resultantly, the pandemic hurt the company’s Parks, Experiences and Products segment the most as its parks and resorts have remained shut or operated at decreased capacity along with suspension of cruise ship sailings since late second-quarter fiscal 2020. Notably, Disney’s four adventure parks in California, Florida, Shanghai and Hong Kong re-opened on decreased capacity due to strict social-distancing norms. Meanwhile, water parks such as Blizzard Beach and Typhoon Lagoon Water Parks stay closed. This is expected to have resulted in sluggish occupancy numbers, thereby adversely impacting top-line growth.

Meanwhile, Disney is expected to have gained from robust growth in global paid subscriptions across its portfolio of direct-to-consumer offerings, including ESPN+ and Hulu.

The company’s video streaming platform Disney+ is also expected to provide some support to Disney’s earnings results. Notably, Disney+, as of Jan 2, 2021, had 94.9 million paid subscribers, suggesting solid growth since its launch in November 2019. The company saw an addition of more than 21.2 million users sequentially.

It is worth noting here that the pandemic compelled people to maintain social distancing and work remotely. More and more people are spending time at home, keeping with the safe-distancing guidelines and switching to modes of in-house entertainment.

ETFs in Focus

Given this, ETFs with the highest allocation to the social media giant will be in focus going into its earnings announcement. These funds are potential movers if Disney comes up with an earnings surprise. While there are several ETFs in the space with Disney in their basket, we have highlighted funds that have high exposure to this global media and entertainment company (see: all the Consumer Discretionary ETFs here):

iShares Evolved U.S. Media and Entertainment ETF IEME

This actively-managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 88 stocks in its basket, Disney occupies the top position with a 5.3% share. The fund accumulated $20.2 million in its asset base and charges 18 basis points (bps) in annual fees.

iShares U.S. Consumer Services ETF IYC

This ETF offers exposure to the U.S. companies that distribute food, drugs, general retail items and media by tracking the Dow Jones U.S. Consumer Services Capped Index. It holds 133 stocks in its basket, with Disney taking the second spot at 7.3%. The fund amassed $1.55 billion in its asset base. It charges 43 bps in annual fees from investors (read: Consumer ETF (IYC) Hits New 52-Week High).

The Communication Services Select Sector SPDR Fund XLC

This ETF offers exposure to the communication services sector of the S&P 500 Index and accumulated $13.55 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket with Disney occupying the tenth position at 4.2%. The product charges 12 bps in annual fees (read: ETFs to Stack as Reopening Poses No Hindrance for Big Tech).

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The Walt Disney Company (DIS): Free Stock Analysis Report
 
ISHARS-US CN CY (IYC): ETF Research Reports
 
ISHR-EUS MDA&ET (IEME): ETF Research Reports
 
SPDR-COMM SV SS (XLC): ETF Research Reports
 
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