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Why Disney Stock Was Rebounding Today

By Jeremy Bowman - Mar 13, 2020 at 3:35PM

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Shares of the entertainment giant recover some of yesterday's losses on hopes of a federal stimulus.

What happened

Shares of Disney (DIS -1.13%) were bouncing back today alongside a broader recovery in the market. The news came even as the company announced last night that it would temporarily close Disneyland, Walt Disney World, and Disneyland Paris, and shut down its cruise line as much of the world tries to stave off the coronavirus pandemic. 

Despite news of the shutdown, the entertainment company seemed to benefit from the tailwind among stocks today as investors responded to news that the White House and Congress were close to reaching a deal on a coronavrius relief bill, and that Germany, Europe's biggest economy, promised to do what it takes to keep the economy afloat, pledging more than $600 billion in stimulus spending.  

That news encouraged U.S. investors, sending shares of Disney up 5.2% as of 2:27 p.m EDT. At the same time, the S&P 500 had gained 3.3%.

The Magic Kingdom at Walt Disney World with very few people around

Image source: Disney.

So what

There's no question that the headlines this week have been terrible for Disney. All six of the company's theme parks around the world will soon be closed, which, along with the suspension of its cruises, effectively shuts down its parks and resorts business, one of its prime cash cows. News that pretty much all professional and college sports have been cancelled threatens ESPN, the crown jewel of the company's cable division, and as audiences avoid movie theaters, Disney said it would delay the release of several movies slated for the coming weeks, including the live-action version of Mulan. The company is also pausing some film production due to the pandemic.  

Despite that news, investors may be starting to believe that Disney stock has been oversold; the stock had fallen as much as one third since February 21, when the coronavirus sell-off began. That, and hopes for a federal stimulus, seem to be lifting the stock today.

Now what

The good news for Disney is that its media networks business, which includes ABC, The Disney Channel, FX, and National Geographic (in addition to ESPN), should be stable and could even benefit as more people spend time at home. The same is true for its nascent streaming service, Disney+, as well as Hulu.

While Disney's financial results will no doubt be battered by the outbreak, there's little doubt that the company will eventually recover. Given the all-around strength of its business and brands, now could be a good buying opportunity for long-term investors.

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