Let's start by pointing out that no one -- not even the top brass at Walt Disney (NYSE:DIS) -- knows when the world's leading theme park operator will open its gated attractions again. It's now been more than five weeks since Disneyland and Disney World became the last of the media giant's theme parks to close.
Disney initially closed its domestic resorts through the end of March, but now they are closed "indefinitely," with no timetable for a return to operations. Theme park enthusiasts have chimed in with opinions and hopeful thinking, and Wall Street pros have also weighed in on the matter. Some analysts believe Disney World could open in time for the uncertain summer travel season, but at least one financial opinion coming out this week assumes Disney's Florida and California resorts won't open at all until at least January of next year.
As my Space Mountain gently weeps
UBS analyst John Hodulik downgraded shares of Disney on Monday, shaving his price targets as well as profit forecasts for fiscal 2020 and 2021. Reeling back expectations has been the norm for Wall Street as it reassesses the pandemic-fueled interruption and how the decimated economy will gradually ramp back up to speed. Hodulik turned heads by suggesting the new base case for his model's lower earnings outlook has Disney failing to open its U.S. theme parks at all in the 2020 calendar year.
We're clearly bracing for a prolonged shutdown of the world's most popular theme parks. Disney furloughed 100,000 workers this week. The move will save the family entertainment leader $500 million a month, but more importantly, it's not the kind of move a company undertakes if it needs those same employees to slide back into their previous roles in a couple of weeks.
Everything the Disney theme park experience is about -- folks crowding around rides, restaurants, and attractions alongside tens of thousands of other like-minded people -- is everything the current climate is not about. Disney World peddles the old normal. Social distancing swipes left on theme parks.
Disney World and Disneyland will open before a vaccine is available. You'll be on It's a Small World before we hit zero active coronavirus cases. The tricky balance is that the sooner the parks open, the less familiar the experience will be.
The silver lining for investors is that even Hodulik expects Disney to remain profitable this fiscal year. Sure, the $1.60 a share that he's now targeting for fiscal 2020 is essentially what it earned in its fiscal first quarter. Losses through the next two quarters will offset the profit it reports next month for the fiscal second quarter that ended last month. However, Hodulik sees earnings growth for all of fiscal 2021, so the shutdown and slow gradual resumption of its theme parks and theatrical releases will be boosted by its other businesses -- even as we stumble into an inevitable recession.
Disney has the luxury of survival on society's terms, but since smaller players don't have the same luxury -- and they will likely have no choice but to open in the coming months -- it's hard to fathom Disney not opening in some restricted form sooner rather than later. It will take years for Disney's theme parks to return to their former glory, but it will probably take a lot less than eight months for you to be inside the shell of a park that you used to know.