It’s the first Monday of May and already Disney stock has gotten another downgrade by another analyst. This time it’s by MoffettNathanson’s Michael Nathanson. He has downgraded the stock from “buy” to “neutral” ahead of Disney’s earnings report tomorrow.

He’s predicting a theme park revenue drop of 33% this year with a 1% additional decline next year. Then finally a 22% rebound in 2022. Dropping the $26.2 billion previous totals down to $17.7 billion for this year and then back up to $21.3 billion by the end of 2022. So they do expect it to eventually come back up, but not to where it was, at least not in the next couple years.

Here’s what he is basing his downgrade on:

“There are a number of risks that could lead this unprecedented event to have a longer impact, with earnings revisions massively skewed to the downside. Our Disney downgrade is also an admission that we believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening.

As economic pressures from COVID-19 become more evident, we expect to see further pressure on earnings, limiting the stock’s performance for the near-to-medium term despite the company’s strong position longer-term.”

Basically he believes that the economic impact will last longer than most think and there’s fear over a second wave of infections after they re-open. Given the push to reopen, at least at Walt Disney World, it’s a real possibility.  Even if Disney would do everything they could to mitigate the possibility, it just takes one infected person, without a fever, to spread it. I know that Disney and Universal are trying to avoid lawsuits and pockets of re-infection, so I think they will err on the side of caution when it comes to reopening, but then that leads to longer economic effects.

Now he does explain that investors will likely be understanding about he decline and will expect it to continue into 2021. But since it could take until 2022 to see it return somewhat to normal “the risk-reward is just not that compelling.”

Of course we will need to hear what they say in the investors call tomorrow, but if it goes like every other call it will be all about positive spin. They don’t seem to like to answer the hard questions if they can avoid it. I’m not sure they can avoid it this time.

We shall see.

What do you think? Comment and let us know!

Source: The Hollywood Reporter