JPMorgan Sees More Short-Term Upside for Disney


Disney had been a pretty boring stock over the last 4 years, until a surge from its last earnings report finally saw it break through. JPMorgan thinks it can go even higher.

Disney is a stock that has been pretty easy to trade long term, as its trends are both pretty distinct as well as long-lasting. For instance, in the period between 2000-09, it lost almost 60%, and then took off like gangbusters over the next 6 years and grew by over 600%.

It’s been trading sideways since, where it got close 4 different times in an effort to get past its 2015 high, but ended up stalling each time. This therefore hasn’t been an exciting stock at all since then, and while it’s not so bad to tread water when the overall market isn’t doing well, when the market is going up a lot and you’re not, that’s not something we should either shoot for or even tolerate.

Disney is one of the 30 stocks that make up the Dow Jones Industrial Average, and since July 2015, it had been below water, up until a few months ago that is, while the Dow has gained 58%. Few investors pay anywhere near enough attention to relative performance like this though, and those who do would have gotten out of Disney quite a while ago, not because the stock was going down all that much but because there were so many better things to be in during that time.

We don’t ever know the exact moment a bull move may be over with a stock, but when these stories do get told we need to be paying attention enough to hear them. Both Disney and the Dow struggled in tandem after the summer of 2015 when Disney hit their high, but by the time the Dow broke out of their range in July 2016, the index was off to the races and it’s been going up ever since. Disney just got out of the mud last April.

Their 2019 resurgence has provided Disney with above market performance for the year, and we’ve also not only been able to sustain the surge that resulted from their latest earnings report, we have added to it since then. Disney also outperformed the broader market during May’s selloff, suffering only about half the percentage loss that the market did.

Since it is 2019, that’s the year we want to be focused on, and the fact that this stock has been stuck in the doldrums for these years and is finally out of them may even add to its appeal now. There are stocks that beat the market but will also move faster on the way down, and Disney has dropped quite a bit at times in the past, but not when it’s outperforming, as it is now.

Those who have been holding it during the quiet years aren’t about to get knocked off their positions now, when things are looking up, but if we are looking to time it fairly soon, we do need to be aware of the potential impact of Disney’s next earnings call in a couple of weeks, as well as what market forces might do to it if this turns unfavorable.

We don’t just want to look to what happened in May and say that this means that it won’t take as big or more of a hit if we get a real bear market, but this at least shows us that it can handle the more mild stuff like the concerns about trade in May or the earnings concerns that we may run into soon.

Disney’s Upcoming Earnings Report is Just One of Many Factors to Consider

These things are never just about the stock itself, and we can see Disney’s earnings looking great, as well as their future prospects, but they can still take an earnings-driven hit.

If there are concerns with earnings generally, this can prompt traders to sell off the indexes. Disney is also a part of the S&P 500, and if people sell off the Dow or the S&P if things look dimmer overall, they will be selling Disney stock right along with all the other companies that are part of these indexes.

Once a stock’s price gets depressed from it being sold like this, this creates further momentum in the same direction, and this happens on the buy side as well. This all contributes significantly to stocks moving together one way or another.

When other stocks have poorer earnings results, this does affect all stocks somewhat as it changes the overall mood of the market. Anything that is a general concern does the same thing, and the issue may have nothing to do with your company but your stock may still take a hit from it.

The market is holding up pretty well right now though, but while this isn’t a concern right now, this still bears watching if we’re looking to time Disney, either entering a position with it, adding to one, or looking to get out. Analysts tend to focus on a company way too much when they make their recommendations, where they look to oversimplify things too much, but the overall picture with Disney right now does look pretty good.

JPMorgan analyst Alexia Quadrani just reiterated her overweight rating on Disney and is maintaining her $150 price target. There are so many things that go into stock prices that it doesn’t even make much sense to ever set a price target for anything, at least not a specific one like this.

This would require not only their forecasts to be right but for the stock to exist in isolation, which is far from the case, and also to have the market provide a proportionate amount of love or lack of it in line with their business predictions, which often does not happen, but Disney going to $150 this year isn’t at all unreasonable, given the current overall picture.

How Disney’s remake of The Lion King does is related to its stock price, but only loosely, and just how loose this arrangement can be is the part that many fundamental analysts don’t really get. This is just one factor among several that decide these things, including how the economy is doing, the stock and the market’s momentum and changes that occur to this, how future news may affect the market and the stock, what other things people are looking at in regard to the company’s future performance besides these things, and so on.

Stocks Trade in the Present and Therefore Need to Be Managed That Way

If Disney’s earnings call goes well, it’s even more likely, although if it brings news that isn’t so appealing, we could also see it go back to the range it spent so long at, below $120, which can also happen independently of this earnings call if the market decides to reverse enough. We often even see both a stock’s business performance looking stellar and the market moving up as well, but the stock goes down instead for various reasons. Quadrani sees things looking pretty rosy on the business side though, which can bode well for an upcoming earnings call.

She pointed out things such as upcoming movie releases, growth on the theme park side, and their new streaming service that will be released soon as reasons to remain optimistic about the stock.

None of this means that the stock will keep moving ahead, but we do want to take into account a company’s prospects, and when they do look good, that at least minimizes one of the things that may depress its stock price. This really is all about predictions, and the market does rely on analysts to provide guidance to a certain degree, and their thumb up means that their thumb is less likely to go down.

There’s also the fact that if a company is doing enough to grow themselves over the next year or two, they are more likely to be able to continue this, although we really never want to look too far ahead. There’s no reason to decide about 2021 now for instance, apart from accounting what the thinking of others toward this time may do soon, because 2021 will come soon enough and we’ll be better equipped to decide about that year when we get close enough to really tell.

A lot of people think that if they hope to stay in a stock for a long time, they need to know that it will do well over this long time, but it’s really only the nearer term that matters, the future that we can know with reasonable certainty, which isn’t that far ahead. Even that doesn’t need to be accounted for very much as even next month isn’t now, and the best we can be is prepared, which we should be already.

We do not need to even concern ourselves with what Disney might be doing in 20 years, because whether or we will want to still be in the stock then surely cannot be decided this far in advance, nor should it be, unless of course we insist on chaining ourselves to it regardless.

This also applies to whether or not we want to be in the stock next year or even next month. Each day we stay in it involves another decision to hold, and to do this all properly, this involves not making predictions about the future so much as it requires our being attentive to the present.

It’s not that long-term forecasts don’t affect people’s present actions at all, but the future becomes more unknowable as we look further ahead, and at some point, it becomes so much of a guessing game, with so many unknowns that the effect becomes negligible and not worthy of our attention at all.

Even looking a few months ahead like this forecast does is really not anything that we want to pay attention to very much, if at all, and is really not much more than an intellectual exercise, unless we insist on relying on past predictions to overrule present reality when we approach and reach the point we’re predicting for. These predictions certainly do not serve as a proxy for deciding later and leading to our ignoring whatever ends up unfolding to any degree.

There are two ways to mess this up, to act proactively on the prediction and be wrong, and to insist on the prediction being right when it has been proven wrong. Both mistakes are unnecessary.

Ultimately, the takeaway from this analysis isn’t that Disney is going to $150 and we should therefore buy it, or even hold it, it is that the business looks good and this is one factor that we should want to see when in a stock, but only one, and we still need to keep our eyes fully open.

While some may hope that Disney’s performance in 2019 so far may be the start of one of their longer-term trends, an upward one this time, whether or not this happens will depend a lot on how stocks fare in general from here, and especially if we end up seeing a significant pullback similar to the one we saw in the latter stages of 2018, or perhaps an even worse one if the bears are to be believed.

In the meantime, no one will complain as long as Disney’s stock price keeps playing along, and this is what we really need to keep watching if we are trying to decide whether we’re in or out with something, but so far so good.

Eric Baker


Eric has a deep understanding of what moves prices and how we can predict them to take advantage. He also understands why so many traders fail and how they may help themselves.