Walt Disney Co. stock fell more than nearly 5% in early trading Monday after MoffettNathanson media analyst Michael Nathanson downgraded his rating on the stock to “neutral” from “buy,” citing the continued impact of the COVID-19 pandemic on the company.
Disney has been one of the hardest hit companies during the pandemic, with its Theme Parks, cruise lines and retail operations being shut down, its film and TV production units stalled and its sports networks losing the ability to air live games. Disney stock has see-sawed over the past several weeks -- it dipped as low as $85.76 per share on March 23 -- and was priced at $105.50 on May 1, down about 12% since March 4, around the time the lockdowns began. The stock fell as low as $100.55 each earlier on May 4 (down 4.7% from the previous day), and was priced at $101.76 each as of 2 p.m., down 3.6% ($3.75 per share).
In his research report, Nathanson stressed that Disney’s leadership, brand equity and positioning have consistently delivered in the face of increasingly bad circumstances. But he added that the fear is that the pandemic and associated shelter-in-place orders will last longer than first anticipated.
“We are downgrading Disney to neutral, not because we have lost faith in those attributes, but rather because we believe there are a number of risks that could lead this unprecedented event to have a longer impact, with earnings revisions massively skewed to the downside,” Nathanson wrote.
Most of that impact will be felt by Theme Parks and Studio divisions. Nathanson estimated that Theme Park and Consumer Products revenue would fall 33% in fiscal 2020, and that Studio revenue would drop 23% in the same time period.
Media Networks will also feel the pain. According to Nathanson’s estimates, ad revenue at the division should drop 27% in fiscal 2020.
“Our analysis makes it clear to us that Disney is in for a long stretch of significant negative revisions as estimates catch up to the grim reality,” Nathanson wrote.
Nathanson isn’t the first analyst to downgrade Disney stock. On April 7, Well Fargo Securities media analyst Steven Cahall downgraded Disney shares to “equal weight” for largely the same reasons.
Nathanson pointed to one bright spot -- direct-to-consumer offerings Disney+ and Hulu -- in his note, which he said should benefit from the pandemic, but don’t contribute enough free cash flow to offset the other segments.