Disney Stock May Be Down, but It’s Far From Out

While you were sleeping, Disney was making plans for a comeback

It’s hard to think about Walt Disney (NYSE:DIS) as a comeback story. However, DIS stock has been uniquely affected by the novel coronavirus. Their theme parks around the world are closed, and they can’t produce movies — not as if people were going to see movies anyway. The absence of live sports is also affecting ESPN, and cruise ships are docked.

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And right now, you have to believe anyone that wants to order Disney+, the company’s streaming service, has already done it. Unfortunately for Disney, though, even the service’s 50 million paid subscribers is not enough to offset the losses the company will feel in its other areas.

With everything going against it, it’s no wonder DIS stock is down nearly 30% for the year. But while Disney is down, it’s far too early to count the company out. And here’s why.

Can There Be a New Normal Without Disney?

It may be fair to say that as Disney goes, so goes the economy. Southwest Airlines (NYSE:LUV) CEO Gary Kelly said that a reopening of Disney World in Orlando will be essential to increasing customer demand.  “I think a lot of things are going to have to happen for the country to come back to life, much less air travel,” Kelly said. “[Customers] need to have something to do when they get there. So Disney World needs to open back up.”

Overall, out-of-town tourism is more important to Disney World than Disneyland, which has more guests making day trips. In fact, according to David Miller — an analyst with Imperial Capital, “Roughly 85% of attendance in Orlando is either out of state or out of country, which means usually you have to fly there, and if folks don’t want to fly or they’re nervous about getting on a plane or they’re nervous about catching a virus on a plane that is clearly going to affect volumes.”

Disney Takes Its First Steps Toward Reopening

Miller went on to say that reopening the parks may be a complicated proposition. Obviously, Disney will need to address safety concerns. But Disney World and Disneyland are already announcing tentative plans for what a re-opening will look like. Disney calls it a “secure circuit” protocol, and it will allow parks to reopen with limited capacity.

On April 29, the Orange County Economic Task Force issued preliminary recommendations that would allow Walt Disney World, along with other Orlando theme parks, to reopen.

These plans would include phased openings. In the first phase, parks would open at 50% capacity. Then, in a second phase, they would be able to achieve 75% capacity. Other steps would include employees wearing masks at all time, touchless hand sanitizer stations at every ticketing booth, turnstile, ride entry and exit points, regular temperature checks for staff and social distancing provisions. In addition, guests that are 65 years or older would need to stay home.

The NBA Is Also Presenting an Opportunity

Disney and its affiliate ESPN are also facing a loss of revenue from the closing of live sports. The company’s contract with the National Basketball Association is costing Disney more than $2 billion. However, the NBA has not given up on plans to finish its interrupted season.

Part of that plan involves playing games in a handful of remote locations, and the Disney World Resort in Orlando is one of the sites being considered.

“For now, there’s a working plan that games would return without fans, and teams have been told to search out arena dates well into August for the playoffs,” league sources told ESPN in March. “Teams have been directed to give the league office potential dates at smaller nearby game venues, including team practice facilities, that could spare the use of empty, cavernous arenas and possibly provide backdrops to unique television viewing lines.”

Don’t Bet Against DIS Stock

I’ve been bullish on Disney stock, but even I have to admit that the novel coronavirus is presenting an unprecedented challenge. I have no doubt that there will be individuals that will be willing to go to Disney World as soon as it opens — even if they get there by car.

There has to be a company that shows customers what a “new normal” will look like. Last November, I cited my bullish thesis about Disney on the idea that Brand Finance named Disney “The World’s Most Powerful Brand” in 2016.

That said, if there’s a company that’s going to try to heal our nation with a little “faith, trust and pixie dust” (or maybe hand sanitizer), you could do worse than to bet on a company that lets you wish upon a star. And that’s why I agree with InvestorPlace contributor Thomas Niel that DIS stock is a buy at these prices.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/05/dis-stock-down-not-out/.

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