Disney Analyst Estimates Attendance Needed to Make U.S. Parks Reopening "Worth" It

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Walt Disney World Resort

Bernstein's Todd Juenger raises his stock price target from $96 to $015.

Bernstein analyst Todd Juenger estimated in a report published on Thursday what attendance levels the Walt Disney Co.'s U.S. theme parks need to make their reopening worth it for the company. 

He also raised his stock price target from $96 to $105.

After Disney's recent earnings report, Juenger estimated that the Hollywood conglomerate's theme parks would lose $1 billion in earnings before interest and tax per month while shut down due to the novel coronavirus pandemic. On Thursday, he he returned to the topic with an estimate of parks' profitability when reopened at reduced capacity.

"Very little is known about cost flexibility and variable contribution margins," Juenger explained. "We use all of the available information we can find, mostly data from other Disney theme parks (especially Tokyo), and our solid algebra skills, to triangulate an estimate of fixed costs when parks are closed, fixed costs when parks are open, and variable contribution margin per guest."

His conclusion: "Disney can generate enough profit contribution to cover the incremental fixed and variable costs of operating its parks when operating at about 25 percent of normal run-rate attendance," meaning pre-pandemic attendance. That visitor level would make the reopening of the domestic parks "worth" it for the company, he explained.

Disney CEO Bob Chapek had said on the latest earnings conference call that the firm "would not reopen any park any park unless we can make at least a a positive contribution to [the] overhead and operating profit level."

Juenger also estimated in his Thursday report that Disney can break even on earnings before interest and tax (EBIT) when operating at about 60 percent of pre-pandemic attendance. "Anything above that generates positive absolute EBIT, until achieving run-rate EBIT at run-rate attendance," he said.

Juenger also warned investors about "a big potential for confusion of statements/headlines about 'reduced capacity," explaining: "Believe it or not, we estimate Disney domestic parks currently operate at only about 51 percent of maximum theoretical capacity (e.g. 'fire code capacity'). Hence, for instance, if Disney were to limit attendance to 50 percent of run-rate levels, we estimate it would be operating at about 25 percent of maximum theoretical capacity."