Disney (NYSE:DIS) shares have been smashed since peaking in 2021 and have even returned to their pandemic lows. The stock’s poor performance and sharp declines have led a trader to bet that the stock will rebound in the coming weeks and rise above $90. This stock trades at just 16.6 times next year’s forward earnings estimates, the lower end of its historical range.
Bloomberg
If analysts’ estimates are correct, earnings growth in 2024 will rebound sharply and rise by almost 34% to $4.90 per share, while revenue will grow by 5.4% to $93.1 billion. Even more surprising is that earnings growth is expected to remain strong in 2025, rising by 18.2%, while revenue grows by 5.3%, healthy growth rates.
Bloomberg
One reason for the stock’s weakness is likely because those actual earnings estimates have been trending lower. This will be a weight on the shares in the short term as questions swirl around Disney’s direct to consumer product offering, the potential impacts of an economic slowdown on theme parks, and the struggles the company has had with linear TV and ESPN units.
It’s worth noting that the stock has recently gotten a pop following news that the company may be looking to sell its ABC TV unit. On Sept. 14, reports surfaced that Byron Allen made an offer for $10 billion on Disney’s ABC TV Network, FX, and National Geographic channels.
Betting On A Rise In The Stock
Before the news of these potential sales, a trader was betting that Disney’s shares would rebound to around $90 by the middle of October, based on changes to open interest levels. Data from Trade Alert showed that open interest levels for Disney’s October 20 $90 calls rose by 11,216 contracts on Sept. 12. The data also shows that the 10,000 contracts were traded on the ASK in a block for $0.64, indicating they were bought and a bet that the shares would rise.
Technically Oversold
Meanwhile, the stock price has fallen back to pandemic lows and may be showing signs of forming a bottom. The relative strength index fell below 30 in March when the stock was around $92. More recently, the stock made a new low of around $80, while the RSI fell to only 31.2, a higher low. This is a bullish divergence, as noted by the lower low on the price and a higher low on the RSI, and could suggest a longer-term change in trend is coming.
The stock also appears to be forming a falling wedge, a bullish reversal pattern. If the stock can get past resistance at $85, where the trend intersects with horizontal resistance, there’s room for it to run to around $92.
TradingView
Disney’s stock has been beaten down, and at the very least, it could be overdue for a rebound, especially if the news of a reshuffling at Disney is on the way.
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