7 Issues Looming Over Disney Stock Ahead of Earnings

Advertisement

It has already been a turbulent year for Disney (NYSE:DIS). DIS stock dropped 29% this year, after plummeting 46% at the height of the novel coronavirus-fueled selloff in March. The pandemic has temporarily hobbled many of its lines of business, and forced its retired CEO to step back into the limelight. On May 5, the company reports its second quarter earnings — an event that will highlight the damage the coronavirus pandemic has done. Those numbers are going to have an immediate impact on the stock.

7 Issues Looming Over DIS Stock Ahead of Earnings

Source: nikkimeel / Shutterstock.com

Just to recap, here’s an overview of the many challenges that will be manifesting themselves when Disney talks Q2 earnings.

Numerous Challenges Bearing Down on DIS Stock

Movie Release Chaos

Coronavirus lockdowns have shuttered movie theaters across the country and thrown movie release schedules into chaos. Disney had one big release that got caught right in middle of things. Pixar’s Onward made $50 million on its opening weekend, then theaters began to close. Trying to make the best of the situation, Disney quickly released the movie digitally for $19.99 and two weeks later, made it available for free on its Disney+ streaming service.

Since then, Disney has had to delay the theatrical release of blockbuster Marvel movies. Black Widow has moved from May 1 to Nov. 6, and that has caused a ripple effect that stretches well into 2021. Disney’s big-budget live action reboot of Mulan was also rescheduled from March 27 to July 24.

Theme Park Closures

On March 16, Disney announced its U.S. theme parks would temporarily close due to the pandemic. On March 27, the company updated the policy, closing Disneyland and Disney World “until further notice.” That move eventually resulted in Disney furloughing 43,000 park employees.

 

A re-opening date for Disneyland in California remains uncertain. However, with Florida beginning to ease restrictions, there is speculation that Disney World could begin ramping up for a limited opening (at 50% guest capacity) within weeks.

Disney Cruises Cancelled

Cruise lines like Carnival Corporation (NYSE:CCL) have been hammered by the coronavirus. Disney’s cruise operations were also early casualties of the pandemic. The company’s fleet: Disney Magic, Disney Wonder, Disney Dream and Disney Fantasy are docked, with all cruises cancelled until at least mid-June.

No Sports for ESPN

ESPN is one of Disney’s more lucrative holdings, bringing in roughly $11 billion yearly in revenue. With sporting events cancelled and professional sports leagues suspending play during the coronavirus pandemic, ESPN has been severely challenged for content. The question is, will subscribers keep paying a premium for repeats of past games, or have they begun ditching ESPN until live sports return? Expect to hear an update on this situation on May 5.

Disney+

One bright point for DIS stock is Disney+, the company’s new video streaming service. After launching in Europe in late March, Disney+ has now nearly doubled its subscriber base during the pandemic — hitting 50 million at the start of April. Not bad for five months since launch. 

Disney originally targeted hitting between 60 million and 90 million subscribers by 2024. The demand from entertainment-starved families locked indoors during the pandemic has helped growth accelerate faster than expected. So has the early availability of movies likes Frozen 2 and Onward on the service.

Disney Q2 Earnings

All of this brings us to Disney’s Q2 earnings, which the company will report on May 5. In Q1, the company beat analyst expectations on both revenue and earnings, and saw quarterly revenue up 36.3% year-over-year.

Given all things coronavirus-related, DIS is going to be feeling the impact, so no-one is expecting anything nearly so rosy. Analyst estimates for the quarter are revenue of $18 billion (up from $14.9 billion). Earnings are expected to take the real hit, though. Analysts are projecting EPS of 83 cents compared to $1.61 for Q2 2019.

China Tension Ratchets Up Again

Just when it seemed as though it had faded from headlines, the U.S. trade war with China appears to be heating up again. President Trump is reportedly planning to punish China over its involvement with the coronavirus pandemic.

Disney has previously warned that the trade war with China is damaging to its business, affecting film, merchandise sales, and Disneyland Shanghai — which is only partially re-opened after being closed during that country’s coronavirus lockdown.

Any escalation won’t have an impact on Disney’s Q2 numbers, but if this situation worsens in May it could be felt in Q3.   

The Bottom Line on Disney

Bernstein rates DIS as market perform with a price target of $100. That’s conservative compared to the 28 analysts polled by The Wall Street Journal. They have Disney stock rated as overweight, with a $126.12 average 12-month price target. 

That’s well below the $140 level DIS stock was trading at before the pandemic hit, but still offers a nice bit of upside. However that may change based on what Disney reports on May 5.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, he did not hold a position in any of the aforementioned securities.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2020/05/7-issues-looming-over-disney-stock-ahead-of-earnings/.

©2024 InvestorPlace Media, LLC