Prior to earnings reports next week we take a look at DIS and IFF shares
In this Alert:
- We’ll continue to look for factors that could drive upside to our $145 price target for International Flavors & Fragrances (IFF), but for now, we would not commit fresh capital at current levels and are changing our rating to a Hold.
- Amid a robust line-up of movies coming over the coming month for the Walt Disney Co. (DIS) and the right-sizing of ESPN, our price target on DIS shares remains $125.
We’ve shared a number of thoughts today following quarterly results from Facebook (FB), AMN Healthcare (AMN) and the explosive results from Universal Display (OLED). Before our next regular scheduled issue of Tematica Investing this coming Wednesday, we’ll get earnings from both International Flavors & Fragrances (IFF) as well as Disney (DIS). Below we share the consensus expectations for both as well as our thoughts heading into those two reports.
International Flavors & Fragrances (IFF) Rise & Fall of the Middle Class
IFF shares continued to inch higher this week, bringing the year to date return to just over 17 percent and well ahead of the S&P 500. IFF will report its 1Q 2017 earnings this coming Tuesday (May 9) before the market open. Consensus expectations sit at EPS of $1.51 on revenue of $831.8 million. We’ve seen a number of confirming signs for the firm’s flavorings business over the last few months as food and beverage companies ranging from Pepsico (PEP) to Coca-Cola and others look to preserve taste while cutting back on sugar and other unhealthy ingredients. We see the pain of those food and beverage companies grappling with the shifting consumer preference that is in sync with our Foods with Integrity investing theme being a positive for IFF.
Longer term, the outlook remains bright for this market as the Freedonia Group’s forecast calls for global demand for flavors and fragrances to reach $26.3 billion by 2020, which would be a 21% increase from $21.7 billion in 2015.
- As we digest IFF’s earnings and outlook, we’ll continue to look for factors that could drive upside to our $145 price target, but for now, we would not commit fresh capital at current levels and are changing our rating to a Hold.
Disney Content is King
Disney shares have been strong performer thus far in 2017, but the shares fell more than 3 percent this past week, which we attribute to investors taking profits in an increasingly nervous market. Next Tuesday, Disney will report its 1Q 2017 earnings and ahead of that, consensus expectations are clocking in at EPS of $1.41 on revenue of $13.45 billion for the quarter.
We expect an upbeat report with the company focusing on its robust line-up of movies over the coming months that kicks off with today’s theatrical release of Guardians of the Galaxy 2. That will soon be follow up by Pirates of the Caribbean: Dead Men Tell No Tales on May 26, Cars 3 on June 16 and Spider-Man: Homecoming on July 7. Those rapid-fire releases likely bode well for this Content is King company across several of its businesses in the second half of 2017. We also expect management to discuss its right sizing efforts for ESPN as it re-positions that business toward streaming and other digital content.
- Our price target on DIS shares remains $125.