Harriet Lefton

About the Author Harriet Lefton

Harriet originates from the UK where she worked as a journalist specializing in the metal markets. She graduated from the University of Cambridge before becoming a qualified UK lawyer.

Should You Get Out of NVIDIA Corporation (NVDA) and Walt Disney Co (DIS) Before Earnings?

NVDA and DIS could experience volatility after today’s reports.

Both NVIDIA Corporation (NASDAQ:NVDA) and Walt Disney Co (NYSE:DIS) are out with their earnings results for the quarter today after the close. But both stocks are going into the print from very different places. Nvidia stock has soared incredibly over the last couple of years leaving investors and analysts wary that prices are now too high and could slip post-earnings- even though fundamentally the stock has a bullish outlook. Meanwhile, Disney stock has barely moved over the last year but is now transitioning into a bull phase say analysts- which suggests that investors who can play the long game should stay and see how DIS develops over the next couple of years.

Let’s take a closer look now at the prospects of these stocks going, both into earnings and for the longer-term:

Nvidia Corporation

Nvidia is due to report its quarterly earnings after the close of trading on Thursday. The stock is up by an incredible 92% year-to-date. And now investors are cautious that the bull run is nearing the finish line and shares are poised to pullback rather than move higher. The difficulty in assessing the stock’s outlook is compounded by the mixed review from the Street.

If we take a look at the earnings report specifically, the consensus estimate is for revenue of $2.36B with EPS of $0.95, with guidance for the next quarter of $2.44B with $0.98. Top Oppenheimer analyst Rick Schafer is actually expecting results to come in higher than the Street. He attributes this to data center success and gaming momentum. For example, while data center just missed lofty expectations in F2Q, the segment still increased nearly 300% Y/Y. Now Schafer expects growth to reaccelerate “as NVDA’s latest GPU AI accelerators ramp in more volume.” As for gaming, this unit has grown ~50%+ each of the last four quarters on continued GeForce momentum and Schafer believes that continued strength is possible here.

Meanwhile, Schafer is expecting cryptocurrencies to provide a lift to the quarter’s results- bearing in mind cryptocurrency accounted for 7% of second quarter revenue and this seems like a reasonable assumption to make. However, he cautions that as far as guidance is concerned, management are likely “to continue to take a conservative tone when forecasting this volatile vertical.”

Ultimately however, expectations are running just too high for Schafer to feel comfortable recommending Nvidia right now. Even though he applauds management’s execution in positioning Nvidias as the premier play on secular growth themes: AI, autonomous driving, and gaming at this point he sees the risk reward as balanced and says: “Net, while we expect another beat/raise quarter from NVDA, with shares up 94% YTD and trading at 50x our CY18 estimate (~2.75x slower growth peers), we remain sidelined here as expectations are running high.” As a result Schafer assigns a Hold rating to NVDA without a price target.

At the same time, some investors may take Schafer’s advice on Nvidia with a pinch of salt. While he is a top analyst in general, on Nvidia stock specifically he has a poor success rate of 25% and average return of -8%. This means that he missed out on Nvidia’s great rally from $30 at the start of 2016 to the current share price of $209 due to his cautious attitude.

In contrast we have Rosenblatt Securities analyst Hans Mosesmann. He has a much more impressive track rating on the stock of 78% success rate and 47% average return. Mosesmann is also out with a report ahead of the earning results later today. Interestingly, he has maintained his Buy rating and his price target of $180- which suggests the stock will fall back by close to 14% over the next 12 months. He is expecting Nvidia to announce a beat-and-raise quarter powered by the new Volta GPU ramp. But at the same time warns: “The question for investors is will a beat-and-raise lead to profit taking after 35% share run in the last quarter or take the shares to a new level.”

Longer-term however he believes shares will catch up with Nvidia’s potential in the hottest technology right now- artificial intelligence (AI). “We suspect that shares will work in that there is really only one way to play the AI theme in technology and NVDA is it” asserts Mosesmann. And encouragingly for Nvidia, competition remains a relatively distant threat. For example, AMD’s Instinct is for now a longer term effort to play out and Mosesmann adds that a second version of Intel’s highly anticipated Nervana AI chip still needs to be developed before the chip will be released.

Overall Nvidia has a cautiously optimistic Moderate Buy analyst consensus rating on TipRanks. In the last three months the stock has received 16 buy, 8 hold and 2 sell ratings. However, analysts are united in one crucial point- that prices are currently overblown. Indeed, we can see that the average analyst price target of nearly $186 now stands at an 11% downside from the current $209 share price.

Walt Disney Co

Walt Disney is also out with its earnings report today after the close. Disney is expected to report revenue of $13.3 billion with EPS of $1.15. But for analysts the message seems clear- that investors shouldn’t focus on these earnings specifically but on the longer-term picture. Indeed, it would appear that Disney’s future is becoming increasingly bullish- suggesting it is worth sticking around and seeing how the stock develops.

“We now consider Disney the best positioned stock in the media sector,” RBC Capital analyst Steven Cahall told investors in October as he upgraded the stock. “Its strategy for the next five years is clear with the push to direct-to-consumer plus favorable affiliate renewals in media, continued investment for growth in the parks and a fantastic slate to drive studio and consumer product earnings.”

The analyst concludes: “We see this new narrative taking over and while there is certainly still risks to forward estimates we now consider Disney one of the clearest pictures for the longer-term.” For Cahall, key catalysts for the stock include Disney’s intellectual property at its TV and film studios, theme parks division and the future Disney streaming service which was announced by DIS in the last quarter. In the meantime, however, Disney will have to adjust to the loss of long-standing CEO Bob Iger in 2019. Cahall has a buy rating and $125 price target on DIS- which suggests 22.5% upside.

Similarly, Piper Jaffray analyst Stan Meyers says that while he is now projecting lower earnings results, longer term he is still a fan of the stock. Meyers explains: “We are adjusting our estimates on a number of factors: (1) Lower Q3 ratings at ESPN; (2) timing of content licensing; (3) weaker than expected sales of Cars 3 consumer products; (4) Closure of Disney World related to Hurricane Irma; (5) Incremental BAMTech investments”.

But like Cahall he says that despite this hiccup, “looking ahead, we remain upbeat on DIS shares as we head into a strong film slate, growth from recent and upcoming carriage renewals, and continued momentum at the Parks.”  For example, Disney’s fiscal 2018 movie slate includes potential blockbusters like Star Wars: The Last Jedi and Avengers: Infinity War. Piper Jaffray has domestic box office estimates on these two films of $880 million and $550 million respectively. Meyers’ buy rating comes with a slightly higher price target on the stock of $130 (27% upside potential).

Disney has a Moderate Buy analyst consensus rating on TipRanks. This breaks down into 9 buy, 8 hold and 3 sell ratings over the last three months. These analysts have an average price target on the stock of $111- which suggests Disney can soar 10% from the current share price over the next 12 months.