Reopening Magic Will Boost Disney Stock

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Is Disney (NYSE:DIS) back in action? Like most other equities, DIS stock took it on the chin, and quite frankly, it was deserved.

It's Been Tough, but DIS Stock Will Regain the Magic Eventually

Source: spiderman777 / Shutterstock.com

However, shares have now rallied almost 60% from the lows, as investors gobble up the entertainment giant.

Disney has some silver linings, and the novel coronavirus helped to accelerate some key parts of its business. But with that being said, DIS stock took a big hit because so much of its business was (and is) under pressure. However, there’s now light at the end of the tunnel.

Covid-19 and Disney

The downside to the coronavirus outbreak is pretty obvious. In fact, Disney’s business cultivated what I view as a perfect storm scenario. The business thrives on cable revenue — much of which is generated from sports programming — as well as theme parks and studio revenue.

Parks shut down in Shanghai, then here in the U.S. March Madness was canceled, then the NBA, golf and the NHL’s seasons were suspended. Then MLB delayed the open to its season. All of this weighed heavily on ABC and ESPN revenue. It didn’t help that Disney’s films were not able to hit the big screen, with theaters closed around the world.

What an absolute mess for Disney, an entertainment tycoon that leaned on its diversified business for decades as a way to sidestep different economic swoons over the years. Not this time though, which is why this situation was the perfect storm.

However, Disney+ is the silver lining. Many analysts and investors thought it would take years for the company to garner this many subscribers.

On March 28, the platform had 33.5 million subscribers. On May 5, when Disney reported earnings, that figure had swelled to more than 54 million. Considering that the platform only launched in November, that’s incredible progress. Even with Netflix (NASDAQ:NFLX) making progress too, Disney has strong momentum.

This is important, because streaming will eventually become another pillar in Disney’s massive business. The acceleration of this unit, combined with a return to normalcy in the U.S., should help drive a recovery in the company’s top and bottom lines.

Valuing DIS Stock

Even though revenue is only forecast to fall 3.2% this year, earnings are set to plunge more than 70%. Keep in mind, we’re now counting revenue from the Fox acquisition. Further, Disney has already reported its second fiscal quarter of the year, not its first quarter like most companies.

With that in mind, the rebound is not forecast to be too robust in fiscal 2021.

Analysts expect revenue to grow 13.4% to $76.4 billion. For earnings, they forecast about 100% growth, but only earnings of $3.40 per share. That’s well below the $5.77 per share the company earned in 2019.

That said, we have to take these estimates with a grain of salt. If America continues its torrid pace of reopening, if sports programming comes back over the summer with a shortened NBA season, NFL and college football go off without a hitch, and most importantly, there’s no second wave of coronavirus that shuts down the country, then these estimates could be way too low.

If that’s the case, then the rebound in Disney is justified, and higher prices could be on the way.

Trading Disney

Chart of Disney stock

Source: Chart courtesy of StockCharts.com

On the daily chart, investors can see the recent rally in DIS stock. Shares bounced hard off the lows near $80 before trading in a sideways pattern between $100 and $110.

The recent rally also sent Disney above its 200-week moving average, and over the $115 mark, as shown on the weekly chart. However, shares are now running into the 200-day moving average and into prior support.

If Disney continues higher, I want to see it clear $130. That puts it above the 200-day moving average and 50-week moving average. It will also open the door for a gap-fill up toward $138. On a dip, bulls want to see $110 hold as support.

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.


Article printed from InvestorPlace Media, https://investorplace.com/moneywire/2020/06/disney-dis-stock-reopening-coronavirus-streaming/.

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