Remaining Bullish on Disney After Q2

If you glance at the one-year chart, you'll notice the rough patch on the right side of the image. But hey, every company has seen some pressure from international economic issues, am I correct? You can't necessarily blame management for that example of volatility.

I mentioned earlier in the week my continued bullishness on Disney. Believe it or not, I'm still calling for $40. When do I think it will happen? Difficult to say, but my sense is, as the company's major movies are rolled out, Wall Street will push the stock higher.

Iron Man 2 is bringing in the bucks right now. Prince of Persia: The Sands of Time arrives later in the month, and in June we have Toy Story 3. That's a slate, my friends. And don't forget that Alice in Wonderland comes out on DVD soon. Speaking of Alice, that project helped to drive results at the studio division in the second quarter. According to the corporate press release, segment operating income for this part of the business soared from $13 million in the year-ago period to over $220 million. Sure, it was an easy comparison, but I'll take it. I also enjoyed the significant reduction in capital expenditures invested in the studio: It dropped to $38 million from $83 million for the six-month period.

Overall, Disney made 48 cents per share, which was two pennies ahead of estimates. Free cash flow increased 28% to nearly $1.7 billion over the past two quarters. Parks and resorts, by the way, could use some magic, as profit in those operation declined 12% in Q2.

Okay. Buy or sell Disney, right? Technically, you have a good argument against me. Many will say the stock will not reach $40 this summer. They will point to recent resistance; they will bring up macro problems.

All true. The 52-week high is $37.98. We need to see a breakout beyond that point for my predicted price to be reached. It seems a long way until $40, I'll tell you that.

A lot can happen, though, between now and the arrival of the next two tent-pole productions. Sentiment can change; upgrades can occur. I'm not going to debate that Disney could be overextended at the moment; however, before any real selling begins, my instinct is telling me that a $40 bid may be placed sometime around the opening of the upcoming Pixar cartoon about a bunch of playthings come to life.

Disclosure: I own Disney, GE; positions can change without notice.