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

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The coronavirus pandemic has dramatically impacted Walt Disney (DIS - Free Report) and it fell short of both our quarterly earnings and revenue estimates on May 5. Despite the entertainment conglomerate’s setbacks, Disney shares have soared over 40% since the market’s March 23 lows.

Quick Q2 Overview

Disney’s adjusted Q2 earnings tumbled 63% from the year-ago period to $0.60 per share, which missed our bottom-line estimate by 28%. DIS also estimated that the coronavirus drained “as much as $1.4 billion” from its operating-income line.

DIS did see its revenue grow 20%. But investors should note that this figure was boosted by the inclusion of its Fox deal and its Hulu ownership that were included for the first time in Q3 of fiscal 2019. For reference, Disney’s Q1 2020 revenue climbed 36%, with Q4 and Q3 FY19 up 34% and 33%, respectively.

Disney & the Pandemic  

These results highlight how much the stay-at-home push has hampered Disney’s various businesses. Both Disney World in Florida and Disneyland in California remain closed.

It’s worth pointing out that the company did reopen Shanghai Disneyland on May 11, with different safety measures in place. However, it’s somewhat hard to imagine the parks and resorts businesses booming anytime soon, even when they reopen in the U.S.

 

 

 

 

 

 

 

 

Meanwhile, movie theaters remain closed in many parts of the world—aside from drive-ins. This has forced Disney to postpone release dates on what it assumed would be blockbuster hits such as Mulan. And all of Hollywood is in the midst of serious production delays.

Furthermore, live sports have been off the airwaves for over two months now. That said, European soccer is slowly returning, and there are reports that the NBA—a key ESPN partner—might try to return this summer by utilizing some Disney facilities.

Wall Street was likely happy to see that the company said that it had 54.5 million Disney+ subscribers as of May 4, which is up over 20 million from the 33.5 million it reported for the quarter ended on March 28.

Disney+ is still far behind industry leader Netflix (NFLX - Free Report) . But the early numbers show its promise and ability to compete in a competitive space alongside Netflix, AT&T (T - Free Report) , Apple (AAPL - Free Report) , Amazon (AMZN - Free Report) , and others.

However, production delays will likely negatively impact Disney+ programing. And Disney+, which launched in November, is still losing money and is expected to continue to for the next several years.

Outlook

Our current Zacks estimates call for Disney’s adjusted third quarter FY20 earnings to tumble from +1.35 in the year-ago period to a loss of -$0.31 a share. Peeking further ahead, its Q4 EPS figure is projected to sink 74%, with its adjusted full-year fiscal 2020 earnings expected to sink 64%.

Meanwhile, Disney’s Q3 revenue is projected to fall 34%, with the fourth quarter expected to sink 13.5%.   

 

 

 

 

 

 

 

 

Bottom Line

The nearby chart shows how far Disney’s earnings outlook has fallen. This negativity helps DIS earn a Zacks Rank #5 (Strong Sell) at the moment. Investors should also note that Disney announced that it “will forgo payment of a semi-annual cash dividend for the first half of fiscal 2020, given the significant operational and financial disruption caused by COVID-19.” The move is part of a larger effort to preserve cash amid the economic chaos.

Despite its setbacks, Disney stock has climbed over 40% since March 23 to top the S&P 500’s 32% climb and its industry’s 28%. Therefore, many on Wall Street might assume things will return to something close to normal for Disney as the global economy slowly starts to reopen. DIS stock is still down 16% in 2020 and 9% over the last year.

Some people might want to take a chance on the beaten-down powerhouse amid the uncertainty. And longer-term investors could easily look back in a few years and think Disney stock at roughly $121 is a steal. However, the near-term outlook remains rough and its recent climb might not be able to continue even if things go well on the pandemic front.

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