Is Disney Stock a ‘Buy’ before Theme Parks Reopen?

The coronavirus pandemic has put pressure on Walt Disney (NYSE:DIS) stock. The company had to halt most of its operations and forego revenue as a measure to curb the spread of COVID-19. For example, the company stopped film production and closed its theme parks and resorts in response to the coronavirus outbreak.

These measures weighed on Disney stock and threatened its financial performance. The film production and theme park businesses are the company’s major revenue sources.

The film business pulled in $11.2 billion in revenue for Disney in fiscal 2019. The theme park business generated $26.2 billion in revenue in fiscal 2019. Together, the film and theme park businesses contributed 54% of Disney’s total revenue of $69.6 billion in fiscal 2019. Also, the businesses contributed 64% of Disney’s operating profit in 2019.

Disney stock and theme parks reopening

Disney stock fell after the company reported its March 2020 quarter results. The results showed a 10% year-over-year drop in theme park revenue. The stock’s decline showed how importantly investors regard the theme parks business in their Disney investment decisions. Disney stock has jumped more than 12% since the company reopened its Shanghai Disneyland theme park in China on May 11.

Most of Disney’s theme parks are still closed. However, the company plans to reopen them. The company plans to reopen the Disney World theme parks in Orlando, Florida, on May 27. The Disney World facility in Orlando hosts four theme parks that draw close to 160 million visitors annually. The Orlando theme parks are an important revenue source for the company.

Pandemic sell-off creates a discount opportunity

At $120 per share, Disney stock has fallen 16% for the year. However, the company has registered a remarkable recovery from the pandemic sell-off in the first quarter. The stock has pulled up more than 50% from its pandemic lows. Still, Disney stock spots a decent discount for bargain hunters. At this point, Disney trades at more than a 20% discount to its 52-week peak of $153. Moreover, the stock has a 45% upside potential to its highest Wall Street target price at $175.

With box office releases paused and theme parks closed, Disney’s cash flow from operations has diminished. As a result, the company has borrowed to shore up its liquidity. Reopening the theme parks should reduce Disney’s reliance on debt, which should bode well for the stock.