Shares of Disney (NYSE:DIS) stock have not been spared amid the recent novel coronavirus selloff. And frankly, it shouldn’t be. DIS stock is down about 34% year-to-date, and has fallen almost 50% from peak to trough.
However, one could argue that even more downside is justified given the events that have unfolded over the past several months.
How can I say that for such a high-quality, blue-chip stock like Disney? Well, let’s look a bit closer.
Coronavirus Crushes Disney’s Business Model
Many DIS stock bulls will argue that Disney+ streaming hours have to be going through the roof. The platform that launched in the fourth quarter saw instant traction, as customers of all types rushed to join. And while the content king is likely enjoying strong streaming results, the rest of its business is under pressure.
With stay-at-home orders in effect, many consumers aren’t going to the theaters. That’s bad for studio revenue. When the coronavirus outbreak was spreading in China a few months ago, Disney had to close its Shanghai theme park (including for the Chinese Lunar New Year). Those park closures have spread across the world, which is also bad for revenue.
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While streaming hours are likely up, this is not yet a profitable platform for Disney. Instead, it relies on its cable division. But without sports, ABC, ESPN and other channels are hurting right now.
So when you look at the big picture, it’s no wonder that DIS stock is hurting so much. Almost all of its business units are under pressure, but that’s where opportunity comes into play as well.
The Long Play in DIS Stock
While the company’s business is suffering in the short term, none of Disney’s incredible businesses are going away. People will keep watching its blockbuster hits. They’ll keep taking family trips to Disneyland and Disney World and sports will one day return, allowing network revenue to bounce back.
If anything, investors should be excited about this decline. That’s for two reasons.
First, these unprecedented times are driving longer-term themes to the forefront, forcing workers and consumers to adapt. In essence, COVID-19 is accelerating technological and cultural shifts that were already happening.
Telehealth, work-from-home scenarios benefiting companies like Zoom Video (NASDAQ:ZM) and Slack (NYSE:WORK), and streaming video platform are all seeing an uptick in activity. That’s going to be great for Disney+, Hulu and the company’s other streaming options.
As the adoption of streaming video accelerates, Disney is a clear winner. Streaming won’t be a white knight savior for Disney, but years down the road, this accelerated adoption will work out well for the company.
The second reason investors should be excited? They can buy DIS stock at a big discount. Shares ended last week in the mid-$90s, but briefly traded below $80 amid this selloff. If investors can scoop up Disney below $85 and hold it for the long term, they’re going to be happy.
Walt Disney has several very solid businesses units that all happen to be under pressure right now. That won’t always be the case, though, and nor will sub-$100 for the stock price.
Bottom Line on DIS Stock
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There is a downside to Disney, which is that estimates call for a roughly 20% decline in earnings this year. Analysts expect bottom-line profit of just $4.42 per share, leaving DIS stock trading at about 23 times this year’s earnings estimates.
Assigning Disney a valuation at this point is difficult. Not only do investors need to consider the short-term impact to the business, but there’s also a lot of unknowns related to the coronavirus. That is, how long will it last and what kind of economic landscape will we be in once it’s all said and done?
As those questions remain unanswered, the needle will continue to move for estimates on Disney. Investors simply need to weigh what kind of discount in the stock prices finally prices in all of these short-term risks. Is it 40% off the highs? Does the stock need to take out its low and fall 50% from peak to trough?
Whatever the price may be, investors who buy into the panic and hold for several years should end up very happy. As it pertains to the technicals, let’s see if DIS stock revisits sub-$85 on the downside. If so, the $79 lows are in play. On the upside, however, see if Disney can reclaim $110 and the 200-week moving average.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
