Disney Stock Is Way More Likely to See $115 Before It Sees $150

Stocks To Sell

Disney (NYSE:DIS) has not a good year so far. In 2020 DIS stock is down 13%. The media giant has recently announced it is laying off 28,000 U.S.-based employees in its theme-park division.

dis stock

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These theme parks are in California and Florida, two states where the pandemic has significantly disrupted lives. According to the “Theme Index and Museum Index: The Global Attractions Attendance Report,” in 2019 Disney venues were the most visited U.S. theme parks. Global operations also had a similar success.

“Measures used to limit the spread of COVID-19 … are expected to have particularly severe impacts on… theme parks,” Recent research by Todd Gabe of University of Maine highlights. “These capacity constraints will lower annual attendance figures and the admission fees collected by theme parks, as well as impact the surrounding regions where major theme parks are located.”

Disney has been pressing for California-based Disneyland and Disney California Adventure to reopen. State and health officials across the nation as well as many companies have been walking a tightrope as they navigate the health and economic effects of the pandemic.

Although many shares have recovered from their March losses, the winter months may soon mean more Covid-19 cases and business disruptions. Thus, I expect Disney stock to come under further pressure in the coming weeks.

If you are not yet a shareholder in DIS shares, you may want to wait for a decline toward the $115-level before committing new capital into the company.

Q4 Earnings and DIS Stock Expectations

Disney enjoys tremendous brand recognition globally. In early August, it released mixed Q3 results. Revenue came at $11.78, a decline of 42% from a year ago. Adjusted earnings per share were 8 cents, down from $1.34 in the prior-year quarter.

Disney, which has diversified revenue streams, reports revenue in four segments:

  • Media Networks (revenue down 2% YoY)
  • Parks, Experiences and Products (revenue down 85% YoY)
  • Studio Entertainment(revenue down 55% YoY)
  • Direct-to-Consumer & International (revenue up 2%)

The hit to its operating income was $3.5 billion. Management put the blame on the theme parks being closed. The company had not been able to release new films in theaters since mid-March. As a result the Studio Entertainment segment suffered, too.

On the brighter side, the Burbank, California-based company said it had 100 million paid subscribers across its streaming offerings. And more than half of them are subscribers to Disney+, contributing to revenues in the Direct-to-Consumer & International segment.

“The global reach of our full portfolio of direct-to-consumer services now exceeds an astounding 100 million paid subscriptions,” CEO, Bob Chapek said. “A significant milestone and a reaffirmation of our DTC strategy, which we view as key to the future growth of our company.”

Following the release of the quarterly metrics, Disney stock moved from the $117 level in early August to hit a recent high of $137.24 on Sept. 3. Now it is hovering at $125.

So Should You Buy Disney Stock Now?

The 52-week range for Disney stock has been $79.07 (March 18, 2020) – $153.41 (Nov. 26, 2019). Put another way, since the lows seen in early spring, DIS shares are up about 58%. $1,000 invested in the company about half a year ago would now be worth over $1,500.

It’s almost impossible to time a top and a bottom in the markets. Yet now could be an appropriate time for investors to take some of the impressive paper profits in Disney shares.

In the next several weeks, I expect Disney stock to be volatile and the price to decline, possibly until the company’s next earnings report in early November. The timing also overlaps with the U.S. Presidential election, which would likely mean more choppiness in equity markets.

Ideally, shareholders would like to see astrong quarter when Disney reports earnings next. However, it is hard to know how the results could come. DIS is a cyclical stock. Prices of cyclical stocks tend to follow the business cycle. And, during prolonged economic downturns, cyclical stocks suffer.

Are you an investor who also follows technical analysis and charts? If yes, a decline toward the $115 level is possible in the last quarter of the year. If you already own Disney stock, you may want to hedge your long stock position with a covered call that expires on Nov 20. That expiration date would give you enough time to evaluate your position after the earnings release and the election result.

Finally, if you are not yet a DIS shareholder, you may use any dip in the stock price to buy into the shares. There could still be some pain for the shares in the last quarter of the year. However, Disney and the stock will likely emerge stronger in 2021.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.

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