Disney’s [DIS] share price has had a tough year as a result of the coronavirus pandemic, almost halving in value when it bottomed out in March as a result of park, cinema and live entertainment closures.
Since its 23 March low of $85.76, however, Disney’s share price has been boosted by 55.5%, reaching $133.36 on 9 September.
A large part of this growth has been seen since mid-May, when its parks and resort locations began to reopen. Disney’s share price has increased by nearly 25% since the reopening of its Disneyland Park in Shanghai on 11 May.
How has the status of its parks affected Disney’s share price in recent days?
Ready to roll
Despite the astronomical growth of its streaming business Disney+, which has accrued over 100 million subscribers in less than a year, its parks, experiences and consumer products segment remains Disney’s biggest earner, bringing in 38% of its overall operating income in 2019.
On 26 August, Disney executives joined a theme park roundtable with its peers and announced that its California-based Disneyland park has been “ ready to roll since July”, and that they are just waiting on California guidelines before reopening.
Disney executives also revealed that they plan to increase capacity in parks that have already reopened across Florida, Shanghai, Tokyo and Paris — which have been operating with strict restrictions on the numbers of guests permitted in light of COVID-19. This news lifted Disney’s share price by 2.5% in the three days following the announcement.
Elsewhere this week, Disney revealed that Disney World restaurants are to begin reopening in September, including Cinderella’s Royal Table at Magic Kingdom and Hollywood & Vine at Disney’s Hollywood Studios.
Although these are positive developments, investors need to remain cautious. Reopenings, such as that of Walt Disney World in Florida, have not all gone as well as expected.
A resurgence of the virus in the area made many would-be visitors hesitant to venture out, leading to lower attendance than Disney expected. Its Hong Kong branch also had to close one month after reopening in June.
It is fair to say that, even with a range of reopenings, Disney is still facing limitations when it comes to its parks and resorts. When discussing profitability at reduced capacity during its recent earnings call, Christine McCarthy, CFO at Disney, said: “Right now, it’s not as high as expected, but we’re still in the net positive contribution level.”
Disney is not likely to reach full capacity until there is an effective treatment for COVID-19, Parkev Tatevosian, wrote in The Motley Fool. He added: “However, it can continue to build out its streaming offerings, control costs, and responsibly allow visitors at its parks to the extent permitted by local governments,” he added.
“Right now, it’s not as high as expected, but we’re still in the net positive contribution level. However, it can continue to build out its streaming offerings, control costs, and responsibly allow visitors at its parks to the extent permitted by local governments” - Disney CFO, Christine McCarthy
What do analysts say?
For many, the entertainment giant may seem like a pricey stock until the risk of COVID-19 is eliminated. While Disney’s share price has grown, leading to a price-to-earnings ratio of 44, the performance of its largest-earning segment is still up in the air.
“Investors have already priced that return to normal into the stock, given its shrinking year-to-date losses,” Will Healy wrote in the Motley Fool.
“This rally is happening at a time when Disney cannot commit to any reopening dates and, with so much uncertainty, prospective investors may balk at paying nearly 50 times earnings (or triple digits if looking at forward earnings estimates).”
“This rally is happening at a time when Disney cannot commit to any reopening dates and, with so much uncertainty, prospective investors may balk at paying nearly 50 times earnings (or triple digits if looking at forward earnings estimates)” - Will Healy
Despite this, analysts polled by CNN Business still consider the stock a Buy. Of 24 investment analysts polled, 14 consider it a Buy and 9 a Hold, with one analyst rating it an Outperform.
Ivan Feinseth, analyst with Tigress Financial, reiterated his Buy rating on the stock on 21 August, and said that the company’s “industry-leading position and strong brand equity will drive a reacceleration in long-term business performance trends as it eventually overcomes near-term COVID-19 driven headwinds”.
|Operating Margin (TTM)||9.43%|
|Quarterly Revenue Growth (YoY)||-41.9%|
Disney share price vitals, Yahoo Finance, 11 September 2020