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Why Disney Stock Was Rising Today

By Jeremy Bowman – Updated Apr 6, 2020 at 4:40PM

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A rebound in the broad market on hopes for the coronavirus crisis ending help lift shares today.

What happened

Shares of Walt Disney (DIS -0.75%) were moving higher today as the entertainment giant caught a tailwind from the market rebound over hopes that the coronavirus was close to peaking in the U.S. and Europe. That news helped drive gains for Disney and much of the consumer discretionary sector as travel and entertainment stocks have been especially sensitive to the shutdowns in effect across much of the country.

As of 1:56 p.m. EDT, the stock was up 5.4% while the S&P 500 had gained 5.8%.

So what

All six of Disney's theme parks around the world remain shuttered because of the coronavirus outbreak, which has also put its cruise line temporarily out of business, delayed filming of live-action movies and the box office release of all movies, and put a pause on the sporting events that are regularly aired on ESPN. In other words, the pandemic is having a broad-based effect on the business and its financial position, which has led the company to raise new debt in the U.S. and Canada in recent weeks and warn on its performance.

But those headwinds are why investors are so eager for signs that the worst of the outbreak may be over. During the weekend, daily new coronavirus cases declined in Spain and Italy, the two hardest-hit European countries, and seemed to be nearing a plateau in New York State, giving stock market bulls some hope.

Separately, Disney released new animated "Frozen" shorts on YouTube, extending the popular franchise at a time when kids are stuck home from school. Also, The Hollywood Reporter on Friday reported that executives were disgruntled over pay cuts, and the company said it would furlough staffers whose jobs weren't necessary right now as a number of its operations are on pause. 

Now what

Though Disney's streaming services and media networks continue to run without interruption from the outbreak (with the exception of ESPN), the company could report significant financial losses for the first half of the year. There's no question that the entertainment specialist will be in a better position once the outbreak fades, but the company does have an advantage over smaller competitors that are also challenged by the current crisis and may not have the same ability to borrow money or stay financially afloat. For that reason, it could gain market share in some of the businesses it competes in once the pandemic ends.

Jeremy Bowman owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short April 2020 $135 calls on Walt Disney. The Motley Fool has a disclosure policy.

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