Disney Is Going To Turn Positive For 2020

With less than a 10% move needed to make it happen, shares of Disney (NYSE: DIS) are on track to flip the initial script for 2020 on its head and turn positive for the year. While tech may have dominated this summer’s headlines and taken most of the glory for the market’s stunning recovery rally, Disney has been no slouch either.

The $240 billion media and entertainment giant’s stock has rallied 70% off the lows of March and is fast getting back to winning ways. Yesterday alone shares were able to give investors their third-highest close since Q1, even as most of the market was awash in a sea of red. Disney has proven to be a worthy adversary of the coronavirus and has demonstrated its diversified revenue streams and the ability to pivot when needed.

Those brave investors who were willing to buy Disney during the dark days of March might have thought shares would eventually recover, but how many thought it would happen this year?

Fresh Upgrades

It’s certainly looking more likely to happen than not and on Tuesday, Deutsche Bank threw their lot in with the bulls when they upgraded shares to a Buy rating, from Hold. They’re particularly bullish on the company’s streaming prospects as Disney is "succeeding in the land grab phase" of the market, yielding solid subscription numbers so far on a large scale that’s driving "significant opportunities to monetize."

They slapped a fresh price target of $163 onto shares too which suggests there’s room for more than 20% yet. This would take shares well above January's opening price of $147 and put them at all-time highs. Considering how well they’d been performing prior to the pandemic, in many ways it would simply be a return to form.

Last week, Morgan Stanley maintained their Overweight rating on Disney shares and also focused on the streaming segment of the company’s revenue. The long-delayed and much-anticipated release of Mulan last week has clearly captured Wall Street’s attention. Disney are trialing it as a new premium-video-on-demand product, with current subscribers to Disney+ able to pay an additional fee to access the movie now, before it’s rolled out to all Plus subscribers in December.

It will be interesting to see how this tactic plays out as it has not been without controversy. Originally Mulan had been scheduled for a theatre release last November but this was bumped forward to the end of March. When the coronavirus pandemic shut down non-essential social gatherings, cinemas were always going to be a casualty so its release was postponed again. The additional fee to view it now on Disney+ is intended to recoup lost box office revenue but there is growing criticism over the additional fee for subscribers.

Right Direction

Still, with the movie finally hitting the screens, albeit smaller screens than initially planned, things are going in the right direction with the media side of the house. With the NBA playoffs back in action, Disney’s ESPN is also getting a much-needed injection of live sports to offer its own subscribers. 

On the theme park side, bullish news from Hong Kong yesterday will also help the bull’s case in the short term. The island is set to relax its rules on public gatherings and will allow its Disneyland park to reopen at the end of the month if the situation does not worsen in the meantime. It will join the Walt Disney World park in Orlando which has been open for some time now, but not Disneyland in Los Angeles which remains closed.

Disney shares have held up remarkably well in the past few sessions even as the S&P 500 index has shed 7% since Friday. If we see the selling peter out after this fast and furious correction, then expect to see a slow and steady bid in Disney, through the end of the year and beyond.