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Here's why Wall Street is looking forward to 2021 for Disney

Nick Giacoumakis, President at New England Investment & Retirement Group, joins Yahoo Finance's The First Trade with Alexis Christoforous and Brian Sozzi to discuss Disney's latest quarterly earnings reports.

Video Transcript

BRIAN SOZZI: Nick, good to see you again. Do you think Disney's stock is no longer a great stock to hold in retirement portfolios I'm looking over those earnings from yesterday. Tells me that the longer term outlook for this company is not as strong as it once was one to two years ago.

NICK GIACOUMAKIS: Yeah, we would agree, Brian. And actually, we sold the position back in February. So we no longer hold it. However, you know, we like Disney. We just don't like it right now. With that being said, you know when we look at the business, I think the street is looking forward to 2021.

And with that being said, they're hopeful that with the vaccine coming out, COVID slowing down, you know, business will pick up. But your point, the main two businesses, which is, of course is theme parks, movies we don't believe is going to be outweighed by the Disney+ side of the business. So we think the headwinds ahead are considerable. And I think really, Disney's in a situation where they're facing the perfect storm of what's coming forward with COVID.

ALEXIS CHRISTOFOUROS: You know, certainly a highlight was Disney+. Subscriber growth off the charts there, more than 60 million people. But can you explain why the stock is up about 9% today following a really pretty dismal profit report? What are investors pinning their hopes on here?

NICK GIACOUMAKIS: Again, as we know, the market is a voting machine, Alexis. So we think that the Street is hoping that we'll see a vaccine by year's end. Hopeful that, again, they've seen the worst of it. Again, we don't agree. I think that it's going to be a challenging 12 to 18 months because of some of the positions we've talked about. And if you look at even their ESPN business, if you look at the Fox acquisition, we think that there's a lot of headwinds going forward.

We're seeing viewership way down on the sports side. So between viewership being down, between the other pieces I talked about in the main, you know, fundamental two lines of business, I think the Street is right now a little bit overoptimistic.

BRIAN SOZZI: Are you excited about them they're push into direct to consumer?

NICK GIACOUMAKIS: Yes, we are. I think it's a smart move. And I think the new CEO is, you know, going at this in the right fashion. Certainly, trying to capitalize on Disney+. And they had great numbers on the Disney+ side. And that's part of the reason, to Alexis's question, why we saw a nice pop on the stock. They were a couple of years ahead of what they expected. I believe it was 60 million new subscribers that they saw come on, which their goal was to have that number by late 2022, I understand. So they're way ahead of schedule in Disney+.

But even in that space, of course, they have, you know, constant competition from Netflix, now with Peacock out. So that's going to be a very, very difficult space.

ALEXIS CHRISTOFOUROS: Nick, what would you need to see to get back into Disney at this point?

NICK GIACOUMAKIS: We would need to see the core businesses with the theme parks and the core businesses with the movies, you know, pick up. And again, I think really what's going to cause that is going to be a considerable slowdown in COVID or, again, a vaccine coming out. But until that changes, I think the company has a lot of debt also right now. So they've been loading up a lot of debt. I think that we need to see some of the fundamentals change before we would step back into the stock.

And from a stock perspective, if you look at Disney over the past five years, investors really haven't made anything in five years. When we went into the position, we were able to pick it up at a lower valuation and get out of it at a higher valuation. But again, that was pre-COVID. So with that being said, when the fundamentals turn around and we see a pickup in business, I think it would be a better time to look at it again. And also we saw with the "Mulan" release being put off. Obviously, supposed to go to theaters in March.

They tried to do this one off $29.95 arrangement for the movie. We'll see how that works going forward with new releases.

BRIAN SOZZI: Nick, before we let you go, do you think Disney's business will ever recover from the pandemic?

NICK GIACOUMAKIS: I do. Again, I'm an optimist. So I think we will get past this as a nation and as a world. So inevitably, I think their business will shine. It's just a matter of timing right now. Again, we like the company. We just don't like the stock right now because of all the things that we've talked about on this call.