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Can Disney Stock Recover Its Losses in 2020?


May. 6 2020, Published 11:39 a.m. ET

Walt Disney (NYSE:DIS) stock has risen. Today, the company reported its results for the second quarter of fiscal 2020. The company reported mixed earnings before the opening bell. Disney stock was trending down in the pre-market session. The shares declined by 2.05% on Tuesday and closed at $101.06 with a market capitalization of $182.5 billion.

Disney stock has declined over 30% this year as of May 5 due to COVID-19. In comparison, the Dow Jones Industrial Average has declined by 16.8%. However, the stock improved in April and rose by around 12%. Notably, the stock declined in the first three quarters of the year. Currently, Disney stock is trading at a 34.1% discount from its 52-week high of $153.41. The stock is also trading at a 27.8% premium from its 52-week low of $79.07.

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Disney’s Q2 earnings hit by COVID-19

In the March-ending second quarter, Disney’s revenue rose 21% YoY to $18.01 billion. The revenue beat Thomson Reuters’ consensus revenue expectation of $17.8 billion. However, Disney posted a non-GAAP EPS of $0.60, which was lower than analysts’ consensus estimate of $0.89. The company’s adjusted earnings declined by 63% YoY (year-over-year) in the quarter. Disney’s total operating income also fell by 37% YoY to $2.42 billion in the second quarter. The pandemic wiped out the company’s profits, especially in the theme park division.

The spreading coronavirus dented many of Disney’s segments, particularly its Parks, Experiences, and Products segment. The company had to close all of its theme parks and cruise ships. The company also furloughed about 100,000 employees. Disney had to shut its retail stores, which disrupted its supply chain. The company delayed or canceled theatrical releases. Also, the company suspended its film and TV content, which dented its Studio Entertainment segment. The advertising sales also hurt the Media Networks and Direct-to-Consumer & International segments.

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Disney+ gains momentum

However, the company’s streaming service, Disney+, which launched in November, has gained steam amid the current crisis. More people have been streaming movies amid the stay-at-home orders. Notably, Disney+ had 33.5 million paying subscribers at the end of March 28. The service reached over 50 million paying subscribers in April and 54.5 million as of May 4. Like Disney+, other streaming service providers have seen growth. People have spent more time streaming movies. Netflix (NASDAQ:NFLX) had over 182 million worldwide customers in the first quarter, as reported last month. Although Amazon (NASDAQ:AMZN) didn’t disclose its numbers, it witnessed strong growth in its Prime Video first-time subscribers in the first quarter. Amazon had over 150 million Prime members worldwide in the fourth quarter.

Can Disney stock recover in 2020?

So far, COVID-19 has disrupted most of Disney’s businesses. However, Disney’s new CEO, Bob Chapek, is still confident about its fundamentals. Chapek, who replaced former CEO Robert Iger in this quarter, said in the press release that “we are confident in our ability to withstand this disruption and emerge from it in a strong position.” Iger is also confident that Disney will recover successfully in the coming years. During the company’s second-quarter earnings conference call, Chapek pointed out that customers still trust the Disney brand. Customers want to sail again on the company’s cruise ships, which is encouraging. However, it might take some time for the company to revive its cruise ship business.

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Disney might have to suffer losses in 2020 amid COVID-19 uncertainty. The company expects an operating loss of more than $1 billion in its direct-to-consumer segment in the third quarter. Disney’s management also announced that it will discontinue its semi-annual dividend payments. Suspending the dividend payments would preserve approximately $1.6 million in cash.

Meanwhile, Disney plans to reopen its theme park in Shanghai on May 11. There will be many precautions, including limited attendance, masks, and temperature checks. The company also plans to release some of the ESPN studio shows in the week of May 11.

Analysts’ recommendations for Disney stock

Wall Street analysts expect Disney’s revenue to fall by 33.4% YoY to $13.5 billion in the third quarter. For fiscal 2020, analysts expect the revenue to decline by just 1% YoY to $68.9 billion. For the upcoming quarter, analysts forecast losses of $0.32 per share. Analysts also expect the earnings growth to decline by 55.5% YoY to $2.57 per share in the September-ending fiscal 2020.

Among the 28 analysts following Disney stock, 17 recommend a “buy”—down from 21 in the last month. About 11 analysts recommend a “hold”—up from six in the last month. None of the analysts recommend a “sell.” According to analysts’ consensus, the stock has a 12-month mean target price of $124.56. The average target price is at a 23.3% premium to the closing price on May 5.

Looking at analysts’ growth expectations and the company’s outlook, I think that the stock could recover its losses by the end of this year. The company has shown a significant boost in its streaming service offerings. Disney’s other segments should start to improve after the lockdowns and restrictions end.


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