Disney, ESI and RH stock are near buy points, MELI is actionable from an earlier gap up and SHOP stock is close to breaking a trend line, along with reclaiming a buy point.
The media and entertainment conglomerate topped Q3 estimates Thursday, as theme parks and movie theaters reopen. However, its streaming video business has seen slower growth lately. And a rise in Covid cases poses a threat to its theme parks and studio segments.
Earnings soared to 80 cents from 8 cents a year ago, beating FactSet views of 55 cents. Revenue leapt 45% to $17.02 billion, topping estimates of $16.76 billion. Disney subscriptions of 116 million beat FactSet views for 115.2 million. Total streaming subscriptions hit 174 million, above estimates of 170.3 million.
The sequential increase of 9%, picked up a bit from Q2’s 8% gain but is still slower than the 21% sequential increase from Q4 2020 to Q1 2021, when homebound Americans signed up in droves.
Disney’s theme parks around the world have reopened, many with few capacity restrictions. But the delta variant could stall progress.
JPMorgan analyst Alexa Quadrani said in a note to clients Aug. 13 that, “While the Delta variant adds a bit of uncertainty to the outlook, management noted strong forward reservations trending higher than in FQ3.”
Quadrani added she’s “confident that the parks can emerge from the pandemic with better profitability given the improvements the company has been able to implement during this period.”
Disney unveiled a new annual pass program, and a new app is in the works to meld consumer preferences and park offerings in real time.
Disney stock made bullish moves at Friday’s open following earnings. Shares rallied nearly 5% to 187.58 intraday and hitting a three-month high. But DIS stock pared gains, closing up just 1% at 181.04. Getting above short-term resistance at 186.29 or Friday’s high of 187.58 would offer an early entry.
Disney’s relative strength line is trying to nudge higher after sliding for five months. Both its RS Rating and EPS Rating are 56 out of 99. The EPS Rating should improve as earnings continue to rebound.
Element Solutions, which makes specialty chemicals used in EVs, 5G smartphones and AI technology, has a buy point of 24.80 from a flat base. ESI stock is already actionable from Thursday’s bounce off the 50-day line and from clearings a short-term resistance just above 24.
ESI stock edged lower on Friday, but rose 3.7% for the week to 24.20. Element Solutions’ relative strength line is trending up, not far from highs after a solid uptrend. Both its RS Rating and EPS Rating are 92 out of a possible 99.
Last quarter, Elements solution posted 94% earnings growth. Analysts see the company’s EPS climbing 55% in the current quarter and 44% for the year.
With a Composite Rating of 98, ESI is the top-ranked company in IBD’s specialty chemicals industry group, which itself is ranked No. 33 out of 197.
Mercado Libre Stock
Online shopping was already growing rapidly before the pandemic. But shoppers have gotten even more comfortable with buying all sorts of items online. The trend appears to be sticking even as physical stores reopen.
Mercado Libre reported Q2 EPS of $1.37, 23% above the year-ago period and trouncing estimates for 11 cents. Revenue doubled to $1.7 billion, topping estimates of $1.46 billion.
MELI stock has a 2020.10 official buy point from a cup base. It’s possible shares are just starting to form a handle. However, investors could start a position, as it’s still in range from a post-earnings gap up on Aug. 5 to 1812.95, with the entry just above that intraday beak.
Mercado Libre has an RS Rating of 86 and an EPS Rating of 29. Its relative strength line is trending upward.
The provider of cloud-based commerce platform for small and midsize businesses has had seven straight quarters of earnings and revenue growth. SHOP stock fell 1.8% last week to 1,498, dipping back below a buy point but finding key support.
Canada-based Shopify had blowout Q2 earnings of $2.24, more than double the year-ago quarter and way above views for 97 cents. Sales jumped 57% to $1.12 billion, topping views for $1.05 billion.
Management said in a statement after earnings that given the improvement in the overall economic environment through the first half of 2021, consumer spending is starting to rotate back to services and offline retail, and e-commerce is growing at a more normalized pace relative to 2020.
“In view of these factors and Shopify’s performance for the six months ending June 30, 2021, we continue to expect to grow revenue rapidly in 2021, but at a lower rate than in 2020,” the statement said.
SHOP stock initially cleared an early entry just above 1,300 on June 14, quickly running to 1,499.85 buy point from a cup base. Shares did rise as high as 1,650 on July 23, but have been choppy over the past two months.
SHOP stock found support at its rising 50-day line on Thursday and is currently trading just below the 1,499.85 entry. A sizable bounce from the 50-day line and a retaking of the 21-day line could break a trend line — all flashing buy signals — and get the stock above the official entry point. Perhaps ideally, shares would consolidate for a couple more weeks, forging a new flat base on top of the larger cup consolidation.
Its RS Rating is 88, while its EPS Rating is a top-notch 99. SHOP’s relative strength line is ticking back up after falling from all-time highs in recent weeks.
Luxury home furnishings retailer RH has had an impressive run throughout the pandemic as folks remodeled or bought homes. RH stock jumped 7.1% last week to 722.94, but Friday’s 2.1% drop left it just below a buy point.
The company has posted four straight quarters of earnings growth and three quarters in a row of earnings gains.
As Covid restrictions loosened amid the vaccine rollout a couple of months ago, people began spending elsewhere on travel and entertainment.
But borrowing rates remain low and people are still buying homes and spending on furnishings. Additionally, a surge in delta variant infections may push people back indoors and focused on their homes again. Housing-related stocks have done better in the past few weeks.
RH stock offered an early entry on Monday and Tuesday as it rebounded from its 50-day line. On Wednesday, shares crossed a 724.11 cup-with-handle buy point. On Friday, RH stock retreated slightly below the buy point, but in lighter volume.
RH’s solid fundaments earns it a 98 EPS Rating and a 93 RS Rating. Its relative strength line, though ticking lower, is still near all-time highs.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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