As Theme Parks Reopen, Disney Stock Offers ‘a Compelling Entry Point’ - Barron's

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Nearly two thirds of Disney’s revenue comes from theme parks, movies and advertising.

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Walt Disney stock has had a difficult year, but with the company’s theme parks slowly emerging from closures because of the coronavirus, there is reason to be optimistic about the stock, Bank of America Merrill Lynch says.

Analyst Jessica Reif Ehrlich reiterated a Buy rating on Disney on Monday, while raising her price target to $146 from $123. She writes that the “shares offer a compelling entry point for best-in-class assets with an attractive risk/reward profile,” as reopenings are just one of the catalyst she sees on the horizon.

There is no doubt Covid-19 will continue to be a headwind in the near term. However, she writes that Disney will also see some benefit from the pandemic, because of a faster rollout of Disney+ and more appeal to programming at key brands including ESPN. Elsewhere, theme-park reopenings—including its key location in California—are a major boon. And there is reason to be hopeful about the resumption of feature-film releases and the eventual return of live professional sports.

Indeed, Ehrlich writes that Disney could ultimately exit this period in a stronger position, because it remained relevant to consumers at home with its streaming services and benefits from pent-up demand—especially if it can introduce new theme-park attractions to entice more visitors. With the stock trading at 21 times her 2021 earnings per share estimate of $5.61, she thinks investors would do well to buy into Disney at current levels.

Disney shares have already recovered from the worst of their spring lows, but the stock is still off nearly 20% since the start of 2020, and has fallen more than 17% in the past year. The move is understandable, given that nearly two thirds of the company’s revenue come from theme parks, movies and advertising, all of which have taken a hit. Moreover, even as the parks reopen, Disney is cutting capacity to allow for social distancing and other safety measures.

Others, though, are betting that the company’s powerful position within media will allow it to weather the economic downturn better than others, positioning it well to resume its dominant position as life starts to look more normal.

Disney shares were up 1.4% to $117.16 late Monday afternoon. The S&P 500 was up 0.8%.

Write to Teresa Rivas at teresa.rivas@barrons.com

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