With shares rebounding about 30% from their 52-week low, what’s next for Disney (NYSE:DIS) stock?
Social distancing has been a tailwind for the company’s growing streaming business. However, shutdowns due to the novel coronavirus have been a big headwind for the company’s Theme Parks division. Like with many major stocks, investors remain on the fence whether tailwinds can trump headwinds as the pandemic continues to wreck havoc across the globe.
There’s no doubt earnings are going to take a hit. But, with shares trading more than 25% below their 52-week high, today’s low valuation could mean a great entry point. As the “king of all content,” in an era where content is truly king, the odds favor the “House of Mouse” to remain a wonderful business with a strong economic moat.
Simply put, it may be worthwhile to jump into DIS stock. All bets are off when the pandemic will come to an end. However, the entertainment giant’s shares could see a massive boost if things return to normal sooner than predicted.
Does Coronavirus Mean Mixed Bag for DIS Stock?
The coronavirus’s impact on companies is highly varied. For names like Netflix (NASDAQ:NFLX), you could argue the outbreak has been a tailwind. Millions are stuck at home. With outside leisure activities forbidden by state and local authorizes, streaming movies and TV shows is one of the few entertainment options available.
On the other hand, you have service businesses dependent on people being out and about. Think restaurants, bars, casinos and yes, theme parks. That’s what makes analyzing DIS stock a tricky situation. Some parts benefit from social distancing (Disney+, Hulu). On the flip side, other units like theme parks are hurting big time.
You could just as easily make a bull case for Disney stock as you can a bear case. And that’s exactly the take over at Bernstein. In a recent research note received via email by InvestorPlace, their analyst team discussed how the positives outweigh the negatives. But that doesn’t mean they’re confident shares will rally anytime soon.
Their rationale? The analysts agree that the bears are right — earnings for this fiscal year (ending September 2020) could dip to $3 per share. But, they believe markets will not value Disney stock based on temporarily low earnings.
Regarding the bulls, they agree Disney demonstrates their ability to adapt, via the overnight success of Disney+. Yet, they’ve rated shares the equivalent to “hold,” giving a $100 per share price target. That’s slightly below the stock’s April 13 closing price ($103.50 per share).
An “on the fence” take, to say the least. But, considering the potentially massive rally that could happen if the pandemic ends sooner than we think, it may be worthwhile to enter a position at today’s prices.
The Short and Long-Term Cases For Disney Stock
Bernstein may be lukewarm on Disney’s short-term prospects. However, there’s good reason shares could quickly rebound to past highs once social distancing comes to an end. If anything, this stock is one of the best ways to bet on the “floodgates” reopening sooner than anticipated.
As InvestorPlace’s Luke Lango discussed April 9, Disney’s myriad of businesses could benefit as pent-up demand translates into increased revenue once restrictions are lifted.
Think about it: It’s not just a re-opening of the company’s theme parks that could move the needle. The company’s ESPN unit has suffered greatly from sports being put on hold. How about the movie division? Nobody’s going to cinemas now. But once they re-open, box office receipts could see a boost as well.
In short, buying Disney gives you exposure to multiple affected industries “returning to normal.” The tailwind the streaming business receives if social distancing continues likely softens the blow with regards to shares falling back to past lows. In other words, a great risk/return proposition.
But this isn’t the only reason to consider Disney stock. There’s still the long-term case. Since the 1980s, shares have been a fantastic long-term hold. But don’t think the company’s glory days are behind them. Even as big tech tries to muscle on their turf, their aggressive investments in streaming platforms like Disney+ shows they are up for future challenges.
Combined with the company’s second-to-none library of Disney, Pixar, Star Wars and Marvel content, it’s tough to bet against them. I believe past performance is indicative of long-term potential.
Buy DIS Stock As Shares Try to Rebound
Looking to make a contrarian bet that coronavirus ends sooner than predicted? Don’t take chances with riskier plays like the airlines. Disney offers tremendous potential price upside with less risk, thanks to its exposure to both the good and bad sides of social distancing.
Bottom line: jump into DIS stock today, before Wall Street starts pricing in its better-than-anticipated prospects.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.
