It has been a thrilling ride up and a terrifying one down the past year and change for Walt Disney (NYSE:DIS) shareholders. But after catching its breath on the price chart this past month, as we move further into a new and unwelcoming normal, DIS stock is showing investors the way to the exits. Let me explain.
Dow Jones Industrials constituent Disney is in trouble.
To be fair it’s not of its own doing and has everything to do with the novel coronavirus. That’s one piece of good news. Another is the company’s streaming Disney+ platform, which has been doing gangbuster business. Alongside competitors Netflix (NASDAQ:NFLX), Apple TV+ from Apple (NASDAQ:AAPL) or Prime from Amazon (NASDAQ:AMZN), “stay at home” or “shelter-in” mandates have been a boon for hours of mindless, couch potato entertainment. But the buck (or more aptly, the $6.99 subscription price for its milestone 50 million subscribers) stops there.
Disney is much bigger than Disney+. The company is a nearly $200 billion diversified entertainment blue-chip stock. And bottom line, its streaming business is hardly a profit center right now or anytime soon. But that’s not the issue. Disney’s real problem going forward is of its own very successful and diversified making and seemingly everywhere else.
So, where do we start with the pickle Disney finds itself in? How about its coveted theme parks which collectively dwarf the global competition? Here in the U.S. those venues led by its crown jewel Disney World are projected to remain shuttered until 2021. And next year? The impact of a ‘new socially distanced normal’ when those admission gates reopen is a certain question mark. And without fear of sounding like an alarmist, it could be really bad.
When the doors do reopen at Disney’s parks attendance levels might very well Wall Street’s consensus views. But let’s be realistic. That’s not happening today and without overthinking things, Disney’s record-breaking ticket attendance sales are going to be a thing of the past. Logistically and within a ‘new normal’ it will be impossible to service customers at the same pace with distancing restrictions. As well, how many families won’t just blink before considering a visit or vacation to any of its numerous theme parks, but will simply refuse the opportunity altogether?
That’s not the full extent of Disney’s difficulties going forward either. Not by a long-shot. The company’s popular cruise lines are going to be in similar murky waters.
There’s also Disney’s slate of notorious big budget, over-the-top movies that’s definitely worrisome. Don’t get me wrong. It’s fine to watch popcorn flicks such as the company’s Avengers or Star Wars franchises on Disney+ for a second, third or maybe even thirteenth time. That’s great. But those same flicks or new ones like its much-anticipated and now delayed Mulan and Black Widow releases are meant to be seen on the big screen first (and maybe second and third as well).
What’s more, when today’s empty cinemas do reopen, they won’t be packing audiences in like in days past due to restrictions and public perception. It’s another issue with potentially much graver consequences for a company whose record-breaking ticket sales in 2019 generated over $11 billion in revenues. It’s a lot to swallow for Disney investors.
Unfortunately, I’m not done.
In case you forgot, the House of Mouse’s cash cow ESPN sports network is sweating Covid-19 too. Even before coronavirus, fewer people were watching stolen bases, fast cars, slam dunks, galloping horses, fights on ice and theatrical falls by grown men looking for penalties on ESPN. But the network — the veritable big leagues of sports (for most of us) — isn’t what it used to be right now unless you’re excited about an upcoming live record-breaking dead-lift attempt.
Did I forget anything? Today the S&P Global Ratings dropped Disney’s credit rating to A-minus due to risks tied to the coronavirus. And lastly, there’s the Disney stock price chart that has this strategist seeing shares as being only half-way home.
DIS Stock Monthly Chart
Source: Charts by TradingView
The long-term monthly view of Disney shows the recent corrective low took the stock into a challenge of its 50% retracement level, which dates back to the financial crisis bottom. Last year and if you were to tell me DIS could be bought for that type of discount, I’d be like Shrek at a dinner party and leaving nothing but maybe table scraps for others. And right now there’s absolutely no reason to be the first one to sit down to feast on shares.
Disney’s price chart is entering oversold levels as evidenced by stochastics and stock price position relative to the lower Bollinger Band. But as any technician knows, there are no guarantees when it comes a particular indicator, level or combination of the two. Moreover, Disney’s business risks addressed above are interpreted as not having had the opportunity to play out in their entirety in the company’s share price. And to be certain, there are other interesting-looking lines of support to consider down below.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
