On the surface, Disney (NYSE:DIS) stock theoretically should be ranked among the worst blue-chip stocks relative to the novel coronavirus.
Sure, other beleaguered organizations have seen a radical reduction in demand. But almost every facet of Disney’s flagship businesses has been devastated. Therefore, it’s easy to see why so many are skeptical about DIS stock.
Frankly, I stand with the skeptics, up to a certain price threshold. First, Disney is perhaps best known for its theme parks and resorts, often drawing crowds that are packed to the hilt. Clearly, that’s not going to fly in the new normal. Even as most states start reopening their economies, certain common-sense restrictions will likely be in place. While that’s great for public health and confidence, it’s not so wonderful for DIS stock.
Next, you have Disney’s massive portfolio of blockbuster films, which didn’t come cheap to build. However, with huge franchises such as Star Wars, it was money well spent, at least in the pre-pandemic era. Now, analysts will continue questioning that decision as movie theaters remain shuttered.
Third and finally, you have Disney’s ESPN business. Already inching toward irrelevance because of shifting consumer tastes — particularly for millennial viewers — ESPN has long been a problem child. Adding the coronavirus to the mix doesn’t seem particularly helpful, drawing concerns about the viability of DIS stock.
I recognize these challenges and so I’m not gung-ho about the Magic Kingdom. However, should Disney shares fall into the $90 range, that’s when my interest will pique. Here are three reasons why:
Resort Business Are Primed to Lift DIS Stock
Assuming that shares fall to my target range, I would bank that Disney stock represents great value on the coming reopening of the company’s flagship theme parks and resorts. Yes, this falls in line with my broader thesis regarding pent-up demand. However, the best part is that this thesis has played out perfectly with my expectations.
Specifically, I’m referring to the reopening of Shanghai Disneyland earlier this month. According to Time, tickets sold out within minutes. On the consumer sentiment front, that’s not surprising. That park has been shut down for about four months. People are people. We’re not designed to stay indoors indefinitely, irrespective of biological boogeymen.
On a human level, imagine how many birthday parties and honeymoons and other events have been postponed. Heartbroken families have every incentive to make things right and the immediate demand for Shanghai Disney tickets confirms this. Therefore, at the right price, DIS stock makes much sense.
Also consider that China has become the world’s manufacturing base. Unlike our service-oriented economy, the average Chinese worker can’t take his or her job home — unless you know a way of bringing big robotic machinery into your apartment. Thus, their shutdown was a real shutdown.
Yet even in this crisis, the consumers came. That’s a huge confidence boost for when we reopen our societies.
Movies May Not Be So Terrible
Although many of us are raring to go outside and reclaim our lives, understandably, others are hesitant. Further, even the most eager among us will probably admit that they may not want to unnecessarily endanger themselves.
A report from Variety confirmed exactly that. Here’s what writer Adam Vary had to say when describing results from a survey conducted by Performance Research as to whether people feel comfortable going back to the box office:
“Take this answer to the question of whether respondents would rather see a first-run feature as a digital rental at home or in a movie theater, if both were available today: A whopping 70% say they are more likely to watch from their couch, while just 13% say they are more likely to watch at a local cinema (with 17% not sure).”
Obviously, this isn’t great news for companies like AMC Entertainment (NYSE:AMC) and Cinemark (NYSE:CNK). But DIS stock would also take a hit in such a dire environment. As I mentioned, Disney invested heavily in building its blockbuster franchises. Without demand for the cineplex, Disney may find itself up a creek without a paddle.
However, it’s fair to counter that people may be responding harshly because of immediacy bias, where present emotions feel stronger than prior emotions. Once time passes, people will return to their senses.
If it makes you feel better, there’s precedent for such phenomena. In the years immediately after the 9/11 attack, travelers conspicuously avoided flying on Sept. 11. But the passage of time brought normalcy. Today, you don’t find many passengers deliberately sidestepping that date.
ESPN Could Be a Covid-19 Beneficiary
Perhaps no other business unit of Disney will benefit most from pent-up demand than ESPN. Admittedly, sports viewership stats have been generally declining as younger audiences tune out. But the return of NASCAR suggests people of all demographics are eager for sports content.
When Darlington Raceway in South Carolina hosted the Real Heroes 400, it was unlike any other NASCAR race. Most prominently, race organizers did not allow fans in the track, which was a bizarre sight. As well, there was no practice nor qualifying — important events that allow teams to setup their cars for real-time track conditions.
Still, it was a very entertaining event, and I’m not just saying that. Broadcast Fox Sports reported that 6.3 million viewers tuned in, making it the “most-watched competitive sports event on all television networks since this year’s Daytona 500, which reached more than 7 million viewers,” according to The Charlotte Observer.
Here’s the thing — NASCAR isn’t everyone’s cup of tea. Long ago, there was an internet meme where the word “boring” was stylized as a NASCAR logo. But if more than 6 million people are willing to watch cars go round and round an oval track, imagine when our traditional sports like baseball, basketball and football return.
That’s a huge catalyst for Disney in the new normal, one that could see DIS stock move significantly higher.
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.
