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Lightshed Partners analyst Richard Greenfield on Tuesday downgraded Walt Disney’s stock as he argued there’s too little future earnings visibility to measure the COVID-19 impact on the studio’s theme parks, theatrical releases and other out-of-home businesses.
“Disney is built on shared group experiences. Until there is global comfort health-wise with that behavior again, Disney’s earnings are fundamentally impaired,” Greenfield wrote in a report. He added Disney’s share price is overvalued as he downgraded the studio’s stock to “sell,” with an $85 target.
Disney is set to release its latest financial results after the market close on Tuesday.
Greenfield said the impact of the coronavirus pandemic and social distancing will force Disney to dramatically cut strategic investments and operating costs just as investors are betting the studio can successfully pivot to the streaming age with Disney+.
“Disney has gone from being on top of the world a la Lion King (devouring Fox), to feeling like Eeyore stuck in the middle of a perfect storm with no end in sight, an inexperienced CEO and furloughing tens of thousands of employees to reduce costs and sustain a dividend that should have been cut immediately,” the analyst argued.
Disney recently named Bob Chapek as its next CEO, succeeding Bob Iger, who assumed the role of executive chairman but has returned in an enlarged management role at the studio as it navigates the coronavirus pandemic.
Greenfield warned Disney reopening its parks too early risks low attendance with high costs as furloughed workers are brought back, and releasing theatrical tentpoles before moviegoers are comfortable returning to theaters risks deep box office losses. Other risk factors for Disney include a deepening TV ad recession.
The Lightshed Partners researcher echoes other analysts who have forecast the studio’s theme park division will take two or more years to return to normal attendance in the coronavirus pandemic era.
On the direct-to-consumer front, Greenfield touted Disney+ for surpassing 50 million subscribers, but added that “even if Disney+ achieves 100 million subscribers in 2022, we expect revenue to be a fraction of Netflix. For now, Disney+ is really more of the SVOD outlet for Disney feature films (like HBO or Showtime) rather than the focal point of the entire company’s content creation.”
Greenfield said investors would be wrong to look past the COVID-19 impact on Disney to more normalized earnings down the road. “We believe that would be a mistake, as there is no clarity on when vacation travel normalizes, nor when movie theater attendance normalizes, enabling a Disney movie to generate $1-$2 billion of box office,” he argued.
Greenfield forecast Disney earnings will fall in 2021, before reaching a “new normal” in 2022 and beyond. “If our estimates are even close to realistic, we cannot see Disney’s stock price holding in at current levels,” he added.
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