Disney Stock Downgrade Could Be The Beginning of Unmagical Times

Walt Disney Co. shares fell more than 2 percent on Monday (May 4) after MoffettNathanson cut the stock’s rating to “neutral” from a previous “buy” and reduced its price target $8 to $112 ahead of Tuesday’s planned earnings report. The firm also cut its fiscal 2022 outlook on Disney to take into account “the additional risk and uncertainty about what a new normal will look like across most of Disney’s businesses,” according to The Hollywood Reporter.

“We believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening,” MoffettNathanson wrote.

Meanwhile, Morgan Stanley Analyst Benjamin Swinburne kept his “overweight” rating on shares, but reduced his price target to $125. “We lower our near-term forecast due to a more conservative outlook on initial parks utilization and traditional TV headwinds,” Swinburne wrote.

Disney operates six resorts in Florida, California, Hong Kong, China and Paris at a time when government stay-at-home orders and consumer coronavirus fears have left global tourism all but dead. Some states are easing their shutdown orders, but investors and fans of Mickey Mouse are keeping an eye on what Disney will do with its parks.

“This is the greatest challenge that the industry has ever faced,” said Phil Hettema, founder of The Hettema Group, a theme-park ride designer.

Policymakers, epidemiologists and economists, for their part, have been modeling the cost/benefit of reopening the U.S. economy, but PYMNTS’ latest research shows that consumers are conducting their own calculations about when it’s safe to resume normal activities.

So far, the results don’t look promising for Disney. We surveyed consumers about the first-, second- and third-most important reasons to get out of the house, and travel came almost dead last. While 73.1 percent of respondents listed seeing family and friends as one of their top three reasons for leaving home, just 24.1 percent said the same thing about traveling within the United States. And only 5.4 percent listed travel outside the United States as one of their top three reasons for breaking stay-at-home orders.

Perhaps that’s why MoffettNathanson’s outlook estimated that Disney’s theme parks unit will see revenue fall 33 percent to $17.7 billion this fiscal year.