The COVID-19 pandemic has hasn't separated businesses the way normal economic cycles do. It's not dividing the winners from the losers, because there are plenty of top companies that have been absolutely devastated by the pandemic.
Walt Disney (DIS 0.62%) and Walmart (WMT 1.83%) are both leaders in their respective fields, which are completely different on the spectrum of retail stocks. If they're both tops, though, does that make them similarly valuable? Let's take a look at these great companies and see if we can determine which is the better stock pick.
Image source: Walt Disney.
How they're getting through the pandemic
Disney and Walmart have been affected very differently by the pandemic. Walmart's sales have surged, while Disney's revenue has plunged.
This speaks, of course, to Walmart's dominance in food and essentials, as well as its ability to stay open during shutdowns. It has close to 5,000 stores in all 50 states and over 11,000 stores worldwide. Its presence and competitive prices make it a natural choice for families stocking up on essentials, and Walmart delivered -- both literally and figuratively -- when customers needed it to.
Disney, on the other hand, was forced to close a major wing in its parks and experiences segment, which saw revenue decline 85% as a result. Its studio production went on hiatus and film releases were delayed. The bright spot in the entertainment giant's operations was its streaming business, which includes Disney+, Hulu, and ESPN+. Disney+, which was launched in late 2019, has already exceeded expectations with over 60 million subscriptions, and altogether the brands subscribers exceed 100 million.
(One note for this chart: Walmart's fiscal year is ahead of Disney's by about a month, so "summer 2020" for Walmart is the period from May 1 to July 31, and for Disney it's March 29 to June 27.)
|
Metric |
Summer 2020 |
Spring 2020 |
Winter 2020 |
Fall 2019 |
|---|---|---|---|---|
|
Walmart revenue growth |
5.7% |
8.6% |
2.1% |
2.5% |
|
Disney revenue growth |
(42%) |
21% |
36% |
34% |
|
Walmart earnings per share |
$2.27 |
$1.41 |
$1.45 |
$1.15 |
|
Disney earnings per share |
($2.61) |
$0.26 |
$1.17 |
$0.43 |
Data sources: Walt Disney and Walmart SEC filings.
Where they're going
Walmart has done an exceptional job of becoming a ubiquitous presence on the American landscape. What was once a Southern landmark can now be found in every metropolitan U.S. area, and Walmart keeps expanding across the country as well as internationally. The current excitement up the pipeline is Walmart+, a subscription delivery service meant to compete with Amazon.com's Prime service. During the past two quarters, it's had incredible growth.
Image source: Walmart.
However, as we saw in the above chart, in a typical quarter Walmart's growth was in the low single digits before the pandemic hit. In addition to its launch of Walmart+, the company is planning to grow globally and ramp up its U.S. stores with digital and new products. But it still faces tough competition from Amazon, and it remains to be seen if it can keep up the momentum it has seen throughout the pandemic.
Disney has several arms that all power its top line, including its parks, experiences, products, streaming, networks, and studios. Each of these is a multibillion-dollar business on its own, and each one sees tremendous growth in a typical quarter for a high total. Disney is releasing Mulan straight to streaming for its Disney+ subscribers at $29.99 a pop, and this has great potential for future releases as streaming becomes extremely relevant. CEO Bob Chapek made it clear that the company will be heavily focused on the direct-to-consumer space in the coming months.Still, the company may not see its efforts come to fruition for a while, as parks openings are still tentative while COVID-19 continues to rage in Florida and California. The next two quarters will reflect how well the parks segment can contribute to total sales, whether or not streaming will make a bigger impact, and how fast total sales can bounce back.
Historical stock growth
Interestingly, both stocks' share prices are closely matched right now -- about $135 for Walmart and $129 for Disney as of Monday's close. But for Disney, that's an 11% year-to-date decrease, while for Walmart it's a 14% increase. Over the past five years, that discrepancy is even more distinct, with Walmart returning over 88% and Disney only returning 19%.
Despite this, and even though I'd say both stocks are winners, if I had to choose, I'd go with Disney. Disney has many plans that could catapult it to much greater heights and it has the capacity to make them happen. Disney's potential for long-term stock growth is much more compelling, and because of COVID-19, investors can buy it at a discount.
