Disney (NYSE:DIS) Shuts Down Annual Pass Program, But Still Consider Disney a Buy

Out of all the pandemic losers out there on the stock market, Disney (NYSE:DIS) has to be one of the worst cases around. With so much of its operations dependent on having large numbers of people in the same place for lengthy periods—from television to movies to theme parks—the numerous coronavirus closures, lockdowns, and whatever else you'd like to call them hit Disney particularly hard. Now, with the company putting most of its resources behind its increasingly-valuable streaming service Disney+, new word has emerged that will likely incense longtime Disney fans.

It's Not Like The Passes Were Much Good Anyway

Disney has shut down its annual pass program, essentially in response to conditions that make the passes ultimately useless for the foreseeable future. This move seems to be limited to the Disney parks in California—Disneyland and Disney California Adventure—where coronavirus restrictions have been in place for most of a year now. A look at the Disney California Adventure website demonstrates the bulk of the problem; under the section “All Dining” options, the most popular option is “temporarily unavailable.”

The annual pass system is set to be replaced by new options, eventually, as there's no timeline on when those new options will be made available. Or even defined. Current annual pass holders, meanwhile, are set to receive pro-rated refunds, amid hopes that, one day, the state of California will at least allow Disney parks to reopen at reduced capacities and by reservation only. Disney itself remains hopeful that the new option, whatever it finally looks like, will better serve its customers, who may have lost their jobs recently and didn't have the cash for a Disney visit anyway.

Shrugging Off Disaster

The word from the broader analyst community, based on our latest research, is taking this development in stride. In fact, recent developments are starting to make the company look a little more attractive. The company has held a “buy” rating for the last three months, and the ratios comprising said “buy” have only improved, though recently plateaued. Six months ago, the company was rated “hold” with one “sell” rating, 13 “hold” and 13 “buy.” Now, we're at one “sell”, but just seven “hold” and 23 “buy”, the same ratio that's been in place for a month.

The price target has been accelerating as well; six months ago, it was $125.40. Today, it's up to $161.41, and with Disney trading currently at $173.20 as of this writing, it's clear that there's some disconnect between target and reality. So far this week, three analysts have hiked price targets above the $200 per share level: Citigroup, UBS Group and JPMorgan Chase & Co.

The Value of Diversification Writ Large

Even as Disney has taken it on the chin the last few months, it's also demonstrated the ultimate value of diversification in business operations. The company has multiple theme parks, a point which has actually served it well. While the California operations remain mostly a ghost town, the Florida operations are at least partially up and running. If California extended Disney the same considerations, it'd be on even better footing.

Then, of course, there's the matter of streaming video. While Disney's television operations are losing some ground, as advertisers find themselves advertising less to people who can't visit their own parks or shops or what have you, the streaming services are running nicely. The last-known reports from December 2 revealed that Disney's streaming services—Hulu, Disney+ and ESPN+—boasted a combined total of 137 million subscribers and change. By the end of fiscal 2024, the company expects that number to better than double, hitting 325 million total. The downside here is that's also when the company expects the streaming segment to be profitable.

Even Disney's cable operations are bearing fruit, though under pressure somewhat due to conditions. Media generated a whopping 111% of Disney's operating income, reports note, so the fact that Disney has today's media well-represented, and is rapidly making inroads in tomorrow's media, should be a welcome boost to investor confidence.

Yes, on the surface, Disney looks pretty dismal right now. But Disney is nothing if not heavily diversified, and we're seeing the value of such a strategy first-hand. Granted, the theme parks won't be coming completely back any time soon, and the media segment will still be a bit uncertain amid the move to streaming and difficulties tied to production. However, there's little doubt that Disney looks to have its ducks well in a row for future development, no matter what the conditions on the ground.