Guggenheim analyst Michael Morris downgraded Disney (DIS) to Neutral from Buy, noting that the company has been "particularly hard hit by the pandemic" across virtually every segment. More bullish on the stock amid the COVID-19 crisis, Atlantic Equities analyst Hamilton Faber upgraded the stock to Overweight as he sees the recent pullback in the shares as overdone.
MOVING TO THE SIDELINES ON DISNEY: In a research note to investors, Guggenheim analyst Michael Morris downgraded Disney to Neutral from Buy and lowered his price target on the shares to $100 from $160. The analyst also lowered his revenue and operating profit estimates and pointed out that Disney has been "particularly hard hit by the pandemic" across virtually every segment of the company. Morris anticipates advertising pressure at media networks and lost profits due to the suspension of both feature film production and theatrical releases. The impact of sports postponements is "unclear," given both the postpone versus cancel decisions and contractual terms, he contended.
PULLBACK OVERDONE: Meanwhile, Atlantic Equities analyst Hamilton Faber upgraded Disney to Overweight from Neutral with a price target of $119, down from $153. With the shares down around 35% since the crisis hit, and with DTC valuations largely unchanged over this period, the analyst believes the negative price action is "overdone." Nonetheless, he has materially cut his estimates as he assumes the parks shutdown persists for the rest of the fiscal year, underlying advertising declines 10% going forward and cord cutting increases from the June quarter onward due to a lack of fresh content. Furthermore, while Faber assumes that while coronavirus issues should ease toward the year end, they will be replaced by a recession.
WELL POSITIONED TO WITHSTAND DOWNTURN: After taking a look at Disney's variable costs, as well as potential scenarios for the Parks' reopening dates, impacts to Studio, Media Networks, and incremental information on the continued rollout of Disney+ in Western Europe and India, JPMorgan analyst Alexia kept an Overweight rating and a $140 price target on Disney’s shares. The analyst's estimates now reflect assumptions that Disneyland, Walt Disney World and Disneyland Paris will be closed until June 1, from May 1 prior, while she expects Hong Kong Disneyland to remain closed through the end of third quarter and Shanghai Disney to re-open on April 15.
She also expects Studio box office revenues to be impaired until theaters re-open potentially in mid-June. Disney+ remains a bright spot, she argued, adding that the service saw a successful launch in Western Europe. While estimates remain fluid due to impacts from COVID-19, Quadrani continues to expect the effects to be temporary and believes Disney is well positioned to withstand the short-term downturn.
WHAT'S NOTABLE: On Friday, Disney issued a notice stating that, "As a result of this unprecedented pandemic and in line with direction provided by health experts and government officials, Disneyland Resort and Walt Disney World Resort will remain closed until further notice. The Walt Disney Company has been paying its cast members since the closure of the parks, and in light of this ongoing and increasingly complex crisis, we have made the decision to extend paying hourly parks and resorts cast members through April 18."
Meanwhile, the company also said in a regulatory filing that, as part of a series of measures to better enable the company to weather the extraordinary business challenges occasioned by the current national health crisis, on March 30, each of Disney’s named executive officers agreed to effect a temporary reduction in the base salaries otherwise payable under their respective employment agreements, effective with the payroll period commencing April 5. The company is also effecting reductions in base salary among a broad group of its executive level employees.
The salary waivers will not modify other rights under the applicable employment agreements determined by reference to the officer's base salary and that such provisions will continue to be applied based on the stated base salary payable under the applicable agreement. Additionally, except for the amount of compensation for paid time off, the reductions are not intended to reduce any company employee benefit provided to such officers that is determined by reference to the base salary payable, except as may be required at law.
PRICE ACTION: In afternoon trading, shares of Disney have gained about 0.6% to $95.47.
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