Disney expected to take massive profit hit from coronavirus

Wall Street is bracing for the worst when Disney reports second-quarter results on Tuesday afternoon.

The Mouse House has taken a particularly hard hit during the pandemic with the majority of its business — theme parks, vacation resorts, movie production, cruises, live sporting events — being ground to a halt.

Wall Street analysts are anticipating a 45 percent year-over-year decline in Disney’s fiscal second-quarter per-share earnings, falling to 88 cents, on 19.4 percent revenue growth, to $17.81 billion.

“It’s clear that Disney sits at the center of the storm for COVID, whether we’re talking parks or studio and the impact on people visiting movie theaters to a knock-on effect or a recession and what that will stimulate for cord cutting,” said Bernstein Research analyst Mike Morton on a recent call with media.

MoffettNathanson analyst Michael Nathanson, who had long been bullish on the media giant’s stock, downgraded Disney from “buy” to “neutral,” and trimmed his 12-month price target to $112 from $120 on Monday.

Shares of Disney fell nearly 4 percent in midday trading.

“There are a number of risks” to Disney from COVID-19 “that could lead this unprecedented event to have a longer impact,” Nathanson said. “The core issue for Disney is not that their future isn’t well protected, it is that the fallout from the COVID-19 pandemic is incredibly harmful to their near and mid-term financials.”

Disney’s stock opened this week at $105.50, well off its 52-week high of $152.41. Since the pandemic took hold in mid-March, Disney’s stock hovered above $100, but in the months prior, it had traded at more than $140.

Disney World
Disney WorldShutterstock

Under the crush of the virus, Disney has closed down its lucrative theme parks, including Disneyland and Disney World, its cruise lines and its hotels. Disney’s movie studio, which consistently releases the top-grossing films at the box office, halted the release of its summer blockbusters and delayed its 2020 slate. Meanwhile, ESPN, the sports powerhouse owned by Disney, has been unable to broadcast any games.

Declines in TV advertising are sure to continue as more consumers cut their cable packages and opt for streaming, the analyst said. And while Disney has found streaming success with Hulu and its new streaming service Disney+, it won’t offset the other losses in the business, he said.

The big question for most analysts when assessing the damage that Disney has incurred has to do with when production restarts and when movie theaters and theme parks reopen — and for now, those questions have no answer.

Even when things reopen, Nathanson cautioned that it will take some time for business to go back to normal. He cited social distancing measures and public health precautions, as well as the broader fact that consumers, hard hit by the pandemic’s economic fallout, will simply have less discretionary income to spend.

“While Disney has the advantaged assets to win in this new world, we fear that uncertainty of the present situation creates significant unrivaled earnings risk for the foreseeable future,” Nathanson concluded.

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