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Bear of the Day: The Walt Disney Company (DIS)

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The Walt Disney Company (DIS - Free Report) is a Zacks Rank #5 (Strong Sell) that is a global leader in entertainment. The company is valued at over $214 billion and pays a dividend of 1.5%.  The company is headquartered in Burbank, California and has 223,000 full time employees

Company Breakdown and COVID

The company’s Media Networks segment operates popular cable networks EPSN, Disney, Freeform, FX, National geographic as well as the ABC network. This segment accounts for about 35% of revenues.

The Studio Entertainment produces all the popular Disney movies and live action motion pictures, as well as musical recording and live stage plays. This segment is about 16% of revenues.

The Parks, Experiences & Consumer Products segment combines Parks and Resorts and their consumer products. The parks include the Disney theme parks all over the world, which help this segment produces 38% of the company revenue.

The Direct-to-Consumer includes Disney’s streaming services and the rest of the company’s revenues.

Looking at these segments, we can easily sniff out why there might be a problem with the Disney’s upcoming earnings on August 4th. With the parks, sports, and movies shut down over the last few months due to COVID-19, there will be a major hit to revenues. While streaming of Disney Plus and Hulu likely hit record number, that segment won’t fill the hole.

The question investors have to ask themselves is if the short-term pain is worth the long-term investment. Considering the stock has rallied 50% off its March lows and is struggling breaking technical resistance, buyers might want to wait for a better opportunity at lower prices.

COVID Troubles Persist

Economies have reopened and so have some of the parks, but there are concerns that a surge in cases, especially in Florida, might force shutdowns again. Even if they remain open, there is uncertainty on if people will consistently want to go with COVID-19 still in the air.

Cowen recently downgraded the stock citing parks and film disruptions are taking longer than initially hoped. The firm says valuation looks full on their new 2022 numbers.

Estimates are Falling

Analysts have taken down numbers drastically due to the lockdowns. Over the last 90 days, estimates have gone from $3.03 to $1.44 for the current year, a drop of 52%. The pain remains for next year, as estimates have fallen 26% over the same time period.  

Technical Take

The stock rallied to the 200-day moving average at $128 and has since fallen back to support around he 50-day. Earnings will likely disappoint and we will see that support break, where the stock might head to test the $100 level. A long-term buy is warranted there.

In Summary

The mouse has a couple hurdles to get over before investors can get being the stock. Longer-term, Disney has an empire that will pay off once the pandemic is over. However, all signs point to a rough back half of the year for the company and the stock.


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