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The Disney Analyst
UBS analyst John Hodulik downgraded Disney's stock from Buy to Neutral and cut his price target from $162 to $114.
The Disney Thesis
Hodulik said COVID-19 has completely shut down Disney’s theme parks, the box office, sports leagues and retail stores indefinitely.
Hodulik said Disney’s parks segment will be the hardest hit of all, and investors don’t seem to be fully appreciating how long it will take to reopen. The UBS base case scenario calls for Disney parks to remain closed for the rest of 2020 and reopen on Jan. 1, 2021. However, he said until a vaccine is created and widely available, investors shouldn’t expect the parks business to return to historical profitability.
UBS is projecting Disney’s Parks segment EBIT to drop from $6.8 billion in fiscal 2019 to $500 million in fiscal 2020 and $200 million in fiscal 2021.
In addition, Hodulik said Disney and its ESPN brand have wide exposure to live sports cancellations, and there could be even more around the corner.
“Postponement or cancelation of the NFL or college football would be another blow and likely impact affiliate revenues given greater cord cutting and distributors' reluctance to pay,” Hodulik wrote in a note.
Closures of box offices and halts in content production will also weigh on Disney’s media numbers in both 2020 and 2021, Hodulik said.
Hodulik pointed out that Disney+ is a silver lining for the company during an otherwise bleak period. Disney+ may not be able to offset steep declines in virtually all other parts of Disney’s business, but stay-at-home orders have given Disney’s core streaming business a major shot in the arm that could generate momentum for years to come.
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