Stock of the Week

Disney

April 2nd 2020

Disney
NYSE Symbol: DIS
Industry: Media
Price as of 4/2/20: $97

 

The coronavirus and government restrictions to shelter-in-place will push the US economy into a recession this quarter. Hopefully it will be a short recession but the travel, leisure and many entertainment businesses have grinded to a halt. Investing in any of these sectors and industries is tough with no revenue coming in. Many couldn't survive without government assistance. However, for the larger more diversified companies, this bear market could be a great long-term buying opportunity. This week, we will highlight one such media giant, Disney.

There are a lot of negatives in the short term for Disney. Their theme parks around the globe are closed. Its estimated that Walt Disney World in Orlando is losing $38 million a day missing out on their daily 159,754 customers visiting their parks, hotels, restaurants and stores including their new Star Wars theme hotels and rides. Add in the Disney Cruise Lines, ESPN with no sports, ABC losing advertising and you can see why the stock is trading near a five-year low. Bu this coronavirus will pass, Disney fans will come back, sports will come back and the stock should perform well in the coming years.

Before the coronavirus, Disney was getting a lot of credit for creating a streaming business, called Disney +. The launch has been wildly successful, with 10 million paid subscribers at the end of the first day of launch and 28.6 million paid subscribers as of February 3, 2020. Starting in April, Disney+ content will be available in the Middle East and North Africa on regional pay television and online streaming services. With their huge library of great movies, Disney can easily transition their content to Disney + including spin off shows and movies like the wildly successful, Mandalorian series with "Baby Yoda".

Just this week, four analysts updated their coverage of Disney, cutting earnings and sales estimates. In the short term there is no way to gauge earnings. Disney gets three quarters of their revenue from two segments, Media Networks and Parks, Experience, and Products. In a more normal year Disney can generate $5.5 to $6 in earnings per share which means the stock currently trades for 16 times more normal earnings, 2.5 times sales and provides a 1.8% dividend yield. The new price targets from the four analysts are $100, $107, $130 and $140 a share. The stock was trading above $150 a share or 50% higher just two months ago. With the stock trading below a $100 a share at a five-year low, investors with a long-term perspective could be handsomely rewarded in the coming years. In the meantime, May the force be with you and be safe.