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Cowen analyst Doug Creutz has downgraded his rating on Walt Disney’s stock from “outperform” to “market perform” after cutting his financial estimates and price target due to what he now expects to be a “longer impact on parks and film” from the novel coronavirus pandemic.
Reducing his stock price target from $101 to $97, Creutz wrote on Thursday: “With the spread of COVID-19 having accelerated in the U.S., we expect a prolonged impact.” And he noted that Florida and California, the homes of Disney’s two U.S. theme parks, Disneyland and Walt Disney World, have been “particularly impacted” and account for roughly 33 percent of new U.S. cases.
“We had previously assumed that the spread of COVID-19 would be relatively halted, with social distancing requirements significantly lessened by late 2020,” Creutz wrote. “We have now extended that timeline out to at least mid-2021; the situation remains very fluid, and we do not rule out the possibility that the impact could last even longer.”
Creutz said he expects “no film releases in fiscal year 2020,” which for Disney ends in September, and “a modest slate” in fiscal 2021. “We now expect domestic theaters to be largely closed until mid-2021, in part because we don’t think studios will be interested in releasing their largest movies into a capacity-constrained footprint.”
While this slightly increases the analyst’s fiscal 2020 film earnings before interest and taxes estimate for Disney “due to lower costs,” it also lowers his estimates for the following two fiscal years.
As far as Disney’s theme parks unit goes, Creutz expects the “recovery trajectory to be pushed out at least one year.” While Walt Disney World reopened “at limited capacity last weekend,” he said he believes “that at best, heavy capacity constraints will prevail until at least mid-2021, and … there is a meaningful probability that the park could be forced to close again.”
Meanwhile, “Disneyland remains closed, and we expect that to persist due to California’s more cautious approach in dealing with the virus,” the Cowen analyst argued. “We now expect domestic park profitability to return to fiscal year 2019 levels in fiscal year 2025.”
All this led Creutz to cut his earnings per share estimate for the current fiscal year from $2.17 to $1.82 and his fiscal year 2021 estimate from $3.97 to $1.86. Concluded the analyst: “We are far from certain that this estimate cut represents the last downward revision to our model.”
Disney shares were trending down about 2 percent in pre-market trading.
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