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Chart Watcher Says Disney Is Approaching A Buy Level – Here’s What To Watch For

Chart Watcher Says Disney Is Approaching A Buy Level – Here’s What To Watch For

Traders say Disney shares have a bit further to fall before the stock is a buy.

Tuesday may have been Star Wars day, but this week hasn’t been the kindest to Disney (NYSE: DIS) shares.

The stock is down 1% over the last week, adding to its 3% decline over the last month, slumping ahead of next week’s Q2 earnings report.

Analysts are expecting earnings per share of just $0.27 on revenue of $16 billion. If met, the earnings per share will mark a 55% drop in profits compared to the same quarter last year, when the coronavirus pandemic forced shutdowns of several of Disney’s divisions.

But as movie production gets back underway, its parks reopen, and as its streaming service continues to grow the stock could soon be heading higher and its long-term prospects look solid.

Truist analyst Matthew Thornton recently reiterated his Buy rating on the stock, boosting his price target to $205.

Thornton wrote in a note, “We continue to view DIS as very well positioned in global Media/Entertainment (and the shift to DTC) on account of its franchises/brands/assets (Marvel, Star Wars, Pixar, National Geographic, Disney/Disney+, ESPN/ESPN+, Hulu/HLTV, Hotstar, others) and competencies (merchandising, advertising, M&A). Further, we continue to think Parks could recover to higher revenue and profitability (as we expect pent-up demand for higher-end family destinations, on top of new cost efficiencies likely found during the pandemic) and continue to expects Parks and Products to benefit from increased DTC content spend (more attractions and product licensing).”

Even still, traders warn the stock still has a bit further to fall before its a strong buy.

“Overall, I like the company a lot, and I do think streaming long term is very attractive within this company and it makes it a good stock to look at long term,” said Blue Line Capital’s Bill Baruch this week. “But, I think this move that we’ve seen here that came from November with the reopening trade through the first quarter is starting to become a bit exhausted.”

Disney shares are up just under 80% over the last twelve months, but the stock has traded lower since hitting a top at the beginning of March. Since then, the stock is down 10%.

“That tells me that there’s a better place to be a buyer here,” Baruch said. “Disney’s trading below the 50-day moving average, and I think what you would wait for is a move back into, say, the $160 area.”

The last time Disney shares traded around $160 was in November 2019, and the level marks a 12% decline from Thursday’s closing price of $181.79. But what’s also clear by looking at the stock’s chart is that the level also aligns with Disney’s 200-day moving average.

Source: TradingView.

“That would be a good area to look to own this stock… and if there’s a broader sell-off in the market, you’ll find it there,” Baruch added. 

Laffer Tengler Investments’ Nancy Tengler agrees that it’s worth waiting for a better opportunity to buy the stock.

“I think you hold it here,” Tengler, the firm’s chief investment officer, said. “A lot of the good news is priced in.”

“Wait for earnings,” Tengler continued. “We’re going to look at what the guidance is about park reopening, because parks are 40% of revenues. We’re also going to listen to what the company has to say about ESPN and television in general. We’ve been seeing strong earnings and guidance result in stocks selling off. You may get a better entry point, and if you don’t, then you just wait a little bit longer, because we will get a correction at some point, and that’ll take down just about everything.”

Disney is scheduled to report earnings on May 13.

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