One stock that looks like a bargain right now is Walt Disney (NYSE: DIS). The global entertainment and media conglomerate has seen its stock price fall by about 40% from 52-week highs reached at the end of 2019, with most of this drop coming in the past few weeks. Here are 3 reasons why now is a good time to buy Disney stock:
1. Significant current undervaluation
It’s hard to get the strongest companies at a low price, and Disney is a top company. That makes the current situation a unique buying opportunity.
The coronavirus panic has set in across the world, with most major stocks dropping in line with the markets. These are temporary drops based on a short-term focus, provided the COVID-19 situation is resolved by the end of the summer.
Of course, Disney’s entertainment parks and cruises that make up about 36% of total revenue are going to take a significant hit due to the shutdown in tourism, but this is not going to be permanent. Disney has the balance sheet to be able to absorb these losses in earnings and come out stronger on the other side.
2. Proven track record of long-term success
Disney has been around since 1923, so it has already survived the Great Depression, the Global Recession and numerous other crashes along the way. It is a resilient company that has a proven track record of delivering strong returns over the long-term.
There is no denying that the cancellation of sporting events will have a dampener on its media advertising and viewership numbers with the likes of ESPN. However, viewership of its other networks will rise during the crisis, with its television networks sector making up 35% of total revenue.
Disney has strong cash balances and minimal debt, with diversified sources of income. This will enable the company to absorb these losses and start churning out strong results once more.
3. Content is king
Disney has an impressive number of content studios under its direction. These include the likes of Pixar, Lucasfilm, Marvel Studios and 20th Century Studios. Movie theaters are shut down, but Disney’s movie division will remain a massive generator in the future. It currently accounts for about 16% of the company’s total revenue. An impressive catalog of movies and shows associated with Disney and its various studios are available through the Disney+ streaming service. It is also releasing a lot of new original content through this streaming service.
What better way to entertain kids and adults alike while they are stuck inside their homes during the pandemic? While this streaming service is not expected to be profitable until 2024, it has been posting some impressive customer acquisition numbers since launching in November 2019.
It had 28 million subscribers already by February, beating predictions. ESPN+ also has 6.6 million subscribers and Disney has a controlling stake in Hulu, a service with 27 million on-demand video subscribers. This compares to Netflix’s 167 million paying subscribers. With the ongoing pandemic, Disney’s streaming numbers are only going to rise.
Naturally, if the coronavirus pandemic worsens and theme parks and cruises remain shut after June, this will have a big bearing on 2020 financial results. People may be wary to start traveling again for some time, particularly on cruises which have received a lot of bad press during the crisis.
There is also a new CEO at the helm after the creative genius Bob Iger stepped down suddenly on February 25 after a 15-year spell. Many believe that Iger was shrewd enough to know that the coronavirus would develop into a serious issue and that someone else might be a better fit for the role.
The new CEO is Bob Chapek and he is more of a numbers man. Therefore, he will be looking at all avenues to steer the ship through the turbulent waters that the coronavirus pandemic has created.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Andrew is a contributing writer to MyWallSt. He is a full-time finance writer, having spent time working in the industry. He studied Economics and Finance and has been fascinated with the financial markets since his teens. The first stock that Andrew bought was Apple, reflecting his love for its products.