Could Disney’s Stock Rise By 35% Post Coronavirus Crisis?

Comparing the trend in Walt Disney‘s (NYSE: DIS) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 35% once fears surrounding the coronavirus outbreak are abated. A detailed comparison of Disney’s performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, 2008 vs. 2020 Crisis Comparison: How Did The Walt Disney Company Stock Fare During Coronavirus Crisis Compared to S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and April 21st, DIS stock has lost 26% of its value (vs. about a 12.5% decline in the S&P 500). A bulk of the decline came after February 20th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 19% over recent weeks, from its 2020 low of $86 in March.

Sell-Off In Disney’s Stock

Walt Disney saw a major sell-off in its stock in 2020. With almost all major cities being locked down due to the spread of coronavirus, there has been a slowdown in economic and industrial activity. This has adversely affected the company’s parks and resorts segment which has virtually seen a complete shut down. Additionally, lower spending power is also expected to lead to a drop in the company’s traditional media business and advertising income. With film shooting and releases being halted, the company’s studio business is expected to be adversely affected, with the acquisition of Fox not proving to be beneficial in the first half of 2020. Our dashboard analysis on Disney’s revenues shows segment-wise revenue contribution and trend.

We believe Disney’s Q2 and Q3 results (year end is September for Disney) will confirm this reality with a drop in media networks and parks & resorts revenues. The only saving grace for the company would be its direct-to-consumer business, which is likely to see healthy growth following a very strong response to Disney+. The ongoing shutdown and home confinement of people has led to increased demand for streaming and home entertainment services, which is likely to boost revenues from Disney+, though the company’s traditional business is likely to report a lower top line. If signs of coronavirus containment aren’t clear by the Q2 earnings timeframe, it’s likely Disney’s stock, along with the broader market, is going to see a continued drop.

Performance During 2008 Slowdown

We see DIS stock declined from levels of around $29 in October 2007 (the pre-crisis peak) to roughly $14 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 50% of its value from its approximate pre-crisis peak. This marked a slightly lower drop than the broader S&P, which fell by about 51%.

However, DIS recovered strongly post the 2008 crisis to about $28 in early 2010 – rising by 95% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Disney’s Stock Recover Similarly After Current Crisis?

Keeping in mind the fact that DIS stock has fallen by a little over 25% this time around compared to the 50% decline during the 2008 recession, we believe it can potentially recover by about 35% to levels of $138 once economic conditions begin to show signs of improving. This marks a full recovery to the $138 level DIS stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on a diverse set of Disney’s multinational peers including Netflix and Comcast. The complete set of coronavirus impact and timing analyses is available here.

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