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Yet investors remain wary that a reopening that
includes attendance limits and strict social distancing rules
will boost the company's shares, especially as record numbers of
coronavirus cases limit the appeal of traveling to Florida.
Instead, they point to the company's already-high valuation as a
result of the outsized success of its Disney Plus streaming
platform as limiting any benefit from the resumption of its U.S.
park operations.
"Disney has become the ultimate hold. You don't want to add to
it here because it's unclear how long it will be until park
revenue comes back to a normalized level, but you don't want to
sell it" because it remains more attractive than other media
companies, said David Mazza, a managing direction at Direxion.
Disney did not respond to a request for comment.
Shares of the company are down 8.3% over the last month,
compared with a 2.3% gain in the S&P 500 over the same time, and
have fallen 19.1% since the beginning of January. Despite those
declines, Disney trades at a trailing price-to-earnings ratio of
43.8, just below its 52-week high of 47.8. Its P/E fell to a
52-week low of 14 on March 23 after beginning the year near 22.
Much of the gains in valuation have come from renewed investor
attention to Disney Plus, which has attracted more than 50
million subscribers since launching in November. That growth,
however, will likely not make up for the hit from the decline in
the parks division.
"The economic recession plus the need for social distancing, new
health precautions, the lack of travel and crowd aversion are
likely to make this business less profitable until there is a
widely available vaccine," analysts at UBS noted. They project
that earnings before interest and taxes in the parks division
will fall by approximately $500 million in this fiscal year and
$200 million the next, compared with a $6.8 billion gain in
fiscal 2019.
Bill Smead, chief investment officer at Smead Funds, said his
firm has been reducing its position in Disney because the shares
look over-valued at a time when its parks division will be
limited and its ESPN and ABC segments are suffering from severe
cutbacks in professional sports.
"A lot of the benefit you'd get from the return to full speed of
parks and the return to full speed to professional sports is
going to get ruined by a P/E contraction" once investor euphoria
over the launch of its streaming business wears off, Smead said.
"The next 10 years are spectacularly in their favor in terms of
demographics, but the expansion of the earnings ratio at the
same time that COVID is crushing a significant part of their
business doesn't make sense."
Chris Marangi, a portfolio manager of Gabelli Funds, said
investors are likely waiting for a larger margin of safety
before taking bigger positions in the company, given its high
valuation. Its parks division will likely not return to more
normalized levels of revenue until at least 2022, he said,
giving the company a short-term hit to earnings but building up
longer-term demand once a vaccine relieves Disney of instituting
capacity caps.
Disney has reopened its Shanghai and Hong Kong Disneyland parks,
and on June 24 announced it was delaying a reopening of the
original Disneyland in Anaheim, California indefinitely. The
company's Tokyo parks opened July 1.
"As we look out, Disney is the best-positioned media company for
the next decade given their franchises and the success of Disney
Plus in particular, but the near-term is going to be
challenged," Marangi said.
(Reporting by David Randall; additional reporting by Helen
Coster; editing by Megan Davies and Dan Grebler)
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