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Disney's Business Hit Hard By The Coronavirus: Is Now A Buying Opportunity For The Stock?

May 6, 2020 11:14 am
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Disney's Business Hit Hard By The Coronavirus: Is Now A Buying Opportunity For The Stock?

Walt Disney Co (NYSE:DIS) shares bounced on Wednesday after the company reported mixed fiscal second-quarter earnings on Tuesday afternoon.

Disney said parks and cruise operating income plummeted 58% in the quarter, but coronavirus (COVID-19) shelter-in-place measures also significantly boosted engagement on its Disney+, EPSN+ and Hulu streaming platforms. As of May 4, Disney+ has 54 million subscribers.

Disney reported adjusted EPS of 60 cents on revenue of $18.01 billion for the quarter. Earnings fell short of consensus analyst estimates of 89 cents, while revenue topped analyst expectations of $17.8 billion. Disney also said it's suspending its dividend for the first half of the year in order to save $1.6 billion in cash.

"While the COVID-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position," said CEO Bob Chapek.

Several Disney analysts have weighed in on the stock.

Uncertainty Ahead For Disney

Wells Fargo analyst Steven Cahall said Disney still has plenty of uncertainty ahead.

“It’s a long road ahead and while DIS has the assets to persevere, we expect a range-bound stock till the post COVID-19 business environment takes shape,” Cahall wrote.

UBS analyst John Hodulik said Disney and its investors are bracing for a brutal June quarter.

“Visibility remains low for domestic parks reopening but mgmt plans to align the cost structure to attendance limits and drive positive contribution margins upon reopening,” Hodulik wrote.

Morgan Stanley analyst Benjamin Swinburne said Disney is focusing on streaming, investing in parks and keeping an open mind when it comes to film distribution.

“At the same time, it is balancing investment with the reality on the ground by implementing significant labor cost reductions and suspending its dividend for now,” Swinburne wrote.

Buying Opportunity For Disney Stock

Bank of America analyst Jessica Reif Ehrlich said Disney took a big hit in the quarter, but its businesses are resilient.

“With negative sentiment peaking and portions of the world economy attempting to reopen, downside appears limited leaving the current valuation as a particularly attractive buying opportunity for best-in-class assets w/substantial (and unchanged) LT earnings power,” Ehrlich wrote.

Tigress Financial analyst Ivan Feinseth said any weakness in Disney stock in the near-term is a buying opportunity.

“Long-term, Disney’s strong brand equity, extensive content and character library, incredibly broad fan base, and powerful marketing ability will drive long-term value,” Feinseth wrote.

Needham analyst Laura Martin said Disney has best-in-class assets and a best-in-class management team.

“DIS's assets will still be world-class post COVID-19, even if certain ROICs suffer for 1-3 years,” Martin wrote.

DIS Ratings And Price Targets

  • Wells Fargo has an Equal-Weight rating and $107 target.
  • UBS has a Neutral rating and $114 target.
  • Morgan Stanley has an Overweight rating and $125 target.
  • Bank of America has a Buy rating and $123 target.
  • Needham has a Hold rating and no target.

Disney's stock traded around $103.44 per share at time of publication. The stock has a 52-week high of $153.41 and a 52-week low of $79.07.

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