Is Disney too exposed to COVID-19?

Not too long ago the stars were aligned for Disney (Disney Stock Quote, Chart, News NYSE:DIS), but investors wishing for a happy ending to this story are likely to be disappointed, so long as COVID-19 is the main feature, that is.

All eyes will be on Disney’s second quarter earnings on Tuesday, with expectations being the company will take huge hits to its business on many fronts. Disney’s theme parks have been shuttered worldwide, its film releases left waiting in the wings for the return of theatres and even newer assets such as ESPN are in the COVID-19 direct line of fire.

Portfolio manager Barry Schwartz says the successful launch of the Disney+ streaming service aside, too much of Disney is wrapped up in health crisis-prone industries, meaning that the stock is likely to suffer for the foreseeable future.

“We used to be holders of Disney and we were extremely bullish on Disney,” said Schwartz, CIO for Baskin Wealth Management who spoke on BNN Bloomberg on Monday.

“I should have acted sooner, as soon as [recently departed CEO] Bob Iger stepped down in the middle of the [pandemic] in March. I should have been at the door then and there but we waited a little bit longer,” Schwartz said.

CEO since 2005, Iger oversaw huge changes at Disney, with the purchase of Pixar, Marvel and Lucasfilms and the blockbuster deal for 21st Century Fox last year for $71.3 billion. Iger had planned on stepping down this year for Bob Chapek, head of theme parks for the company to take over, but now Iger has decided to stick around to steer the company through the pandemic.

“A crisis of this magnitude, and its impact on Disney, would necessarily result in my actively helping Bob and the company contend with it,” Iger said recently to the New York Times.

On the rise for much of the past decade, Disney’s share price plummeted in late February with the rest of the market but has so far been unable to retake a substantial chunk of that ground. Disney is currently trading down about 28 per cent in the low $100 range.

Schwartz says the stock would have to go a lot lower before DIS becomes a buy in this climate.

“We sold our Disney for the following reasons,” he said. It’s hard to see how the parks recover from here in the short term, there are no movies and theatres and won’t be for [at least] a year. Disney+, that’s doing amazing but on the other hand they don’t make any money from it,” said Schwartz. “And of course live sports is the bread and butter of ESPN, and it’s hard to see how live sports comes back in a big way.”

“In the short term, if the stock fell to the mid-$70 or $80 range I’d certainly take a look at it again. It’s hard to bet against Disney because they have such terrific intellectual property, but we’ve decided it’s best to go on the sidelines on the name,” he said.