While most blue-chip organizations suffered amid the novel coronavirus pandemic, few big companies suffered as comprehensively as Disney (NYSE:DIS). Before the crisis, DIS stock offered exposure to three main entertainment avenues: theme parks, blockbuster movies, and sports via ESPN. Though the latter has been a thorn on the side of the Magic Kingdom, it nevertheless was a relevant presence. But during the crisis, all three segments came under direct attack.
Therefore, if any company needed a respite from the storm, it was Disney. Fortunately, recent news has fundamentally moved favorably for DIS stock.
A few days ago, CNBC’s Sarah Whitten reported that “Walt Disney World received approval from the state of Florida to reopen its four Orlando-based theme parks starting July 11.” Whitten went on to state that “Magic Kingdom and Animal Kingdom will open first, on July 11. Then, Epcot and Hollywood Studios will follow on July 15.”
As you might expect, the reopening won’t quite look like a return to business as usual. To help mitigate any potential infections, both employees and guests must wear face masks. Furthermore, those entering the parks must submit to temperature checks. On a related note, companies like Remark Holdings (NASDAQ:MARK), which specializes in thermal scanners, have received a boost of relevance in anticipation of mass-scale reopening measures.
But will DIS stock enjoy a similar benefit? On the surface, the signs look very encouraging. Primarily, Shanghai Disneyland essentially acted as the company’s guinea pig, reopening last month. Despite obvious concerns for safety, tickets sold out in minutes, according to Time.
Hence, the concept of pent-up demand is very real. And that should provide a nearer-term lift for Disney stock.
A Cloudy But Bullish Storyline for DIS Stock
Despite the bullish implications, will investors continue to drive up the Magic Kingdom’s equity value? In addition to the Shanghai story, evidence abounds that Americans are ready to reclaim their lives.
During Memorial Day weekend, we saw millions of Americans crowd into beaches and other public events. Although I can’t provide specific stats, it appeared very few were wearing masks or taking precautionary measures.
Frankly, if I saw some of the videos and photos of these post-pandemic festivities out of context, I would never have guessed that a virus infected millions of people in the U.S., claiming over 100,000 lives. So no, Americans are not going to sit in their homes forever. By logical deduction, this bodes well for DIS stock.
Nevertheless, we can’t ignore what caused this crisis to occur in the first place. As local news from Missouri indicated, someone who attended a high-profile, high-traffic volume event in the Lake of the Ozarks now has the coronavirus. According to Camden County Health Department officials, the patient was “possibly infectious at the time of the visit.”
That’s a problem. You can see why, even if you strongly believe in the reopening narrative, the bullish case for DIS stock isn’t so clear cut. Theoretically, all it takes is for one infected person at a public event to spread the virus exponentially.
To be fair, Disney’s approach – have everyone wear masks – should cut down on infections. Further, these resorts are family friendly. This isn’t a place for frat boys on spring break looking to hook up.
And on an optimistic note, after so much negativity, many if not most people are ready to venture out. Plus, the mitigation measures could see increased broader attention. After all, few like to be shoulder-to-shoulder with strangers in any circumstance.
More Avenues Coming Online
Interestingly, the Covid-19 pandemic may have given Disney’s previously troublesome ESPN a second shot at life. Prior to the crisis, the saturation of entertainment options likely contributed to waning enthusiasm for sports. Now, we’re begging for anything that bears any semblance to competitive activities.
I’m not sure if this was a joke or not, but during my YouTube binge-watching sessions, I came across a competitive marble racing league. This is exactly how it sounds – people rolling marbles into race or obstacle courses to see which marble will come out on top.
What isn’t a joke is the return of NASCAR, with the league’s first race since the national lockdown attracting millions of viewers. I love auto racing, but the kind that involves more than just making left turns. Yet when you deprive Americans of all sports, no low is too low.
Now imagine when traditional sports finally reemerge. Even in mitigated form, America’s religion – otherwise known as the NFL – will make for compelling viewing. Again, when you’ve been deprived for so long, you’ll relish any semblance of the old normal.
Finally, with the resurfacing of public events, it’s only a matter of time before cineplexes open their doors. And that suits Disney more so than many other Hollywood studios because of Disney’s popular film franchises.
The bullish narrative is not without issues, that’s for sure. However, DIS stock may have a longer upside pathway than previously imagined as more revenue-generating channels reopen.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
