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Is Now the Right Time to Buy Disney Stock?

By Daniel B. Kline - May 8, 2020 at 8:29AM

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The company had a dismal quarter, and it's going to get worse. That may be an opportunity for smart investors.

Walt Disney (DIS -1.13%) had a rough quarter, and the worst of the impact of the coronavirus pandemic remains ahead. Theme parks are shuttered, movie theaters sit empty, and the company's broadcasting empire suffers from a lack of content. It's a situation that's only going to be worse in the fiscal third quarter, following a fiscal second quarter where the company saw earnings per share drop to $0.26, a 93% fall from $3.53 in the prior-year quarter.

That seems very bleak, and it is -- in the short-term. If you're a long-term investor, however, now may be the perfect time to buy some shares of this entertainment giant.

A graphic shows fireworks at a Disney theme park.

There will be fireworks again at Disney's theme parks. Image source: Walt Disney.

Why is Walt Disney stock a buy?

Disney stock traded just over $100 per share before the market opened on May 7. That's off from a 52-week high of more than $153.

It's a drop that's understandable, but one that makes little sense in the long-term. At the moment, Disney has to deal with massive drops in revenue and likely a huge loss in fiscal Q3. It has suspended its dividend and plans to raise $6 billion in capital to shore up its financial position until the pandemic passes.

But you don't buy shares in Disney based on a single quarter, or even the next 12 months. If you purchase Disney stock, you're betting that the company eventually has a return to normal.

Do you believe people will eventually return to theme parks, that sports will come back, and that studios will eventually begin producing new content? I do, and when that happens -- be it later this summer, in the fall, or even next year -- Disney will return to dominance.

People may have constrained budgets, but they will find a way to see the latest Marvel Universe or Pixar film. Not everyone will be able to afford a theme park vacation, but that was true before the pandemic as well.

Baseball, basketball, and even football may play in empty stadiums, but content-starved consumers will watch on ABC and ESPN. And those same consumers will (and have) become Disney+ subscribers, driving that service to profitability much faster than it would have achieved without everyone being forced to shelter in place for months.

"While the COVID-19 pandemic has had an appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position," said Disney CEO Bob Chapek in the company's latest earnings release. "Disney has repeatedly shown that it is exceptionally resilient, bolstered by the quality of our storytelling and the strong affinity consumers have for our brands, which is evident in the extraordinary response to Disney+ since its launch last November."

The mouse will roar

You don't invest in Disney for what's happening now, or for the next few quarters. You buy shares of the stock because you believe the company has a world-class roster of properties, and by far the best lineup of intellectual property (IP) of any company.

Disney can use its deep lineup of characters to drive audiences in any medium. That will ultimately help the company to recover, and bring its shares back to the heights they were once at.

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The Walt Disney Company
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