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Disney looks expensive ahead of earnings, market watcher says

Disney reports earnings Tuesday; here’s what’s critical

Disney is set to report quarterly earnings after the bell on Tuesday, and some are staying away from the stock at these levels.

Michael Bapis, partner and managing director at the Bapis Group at HighTower Advisors, said the stock appears elevated at current levels and he would wait for a further pullback in the stock before stepping in to buy. In the longer term, however, Disney shares may be better-positioned. Here are his reasons why.

• The stock has underperformed the broader market over the last few years; Disney has risen a mere 2 percent in the last three years while the has surged 28 percent in the same time. This is due in part to struggling NFL ratings weighing on the stock.

• The stock itself appears expensive, trading at a little over 19 times trailing earnings. To be sure, the S&P 500 is trading at about 22.5 times trailing earnings, according to FactSet data.

• Unless Disney reports blowout earnings, investors should be cautious about getting in here.

• A lower tax rate could help Disney in the longer term, and Disney's amusement parks could stand to benefit from higher attendance if the economy continues expanding and consumers feel they can spend more at the parks. This could ultimately translate into strong earnings.

Bottom line: Disney may be well-positioned in the longer term, but appears expensive ahead of earnings.