05-05-2020, 10:51 PM
While I wouldn't short DIS, I have very little interest in buying it either.
DIS was having trouble growing even before the pandemic hit, as it had flat EPS growth in 2017, then a 24% bump in 2018 on the back of corporate income tax reform, then dropped 19% in 2019. It's currently projected to drop 54% in 2020, and in the current economy it may end up even worse than that. It just reported a GAAP EPS of just $0.26 for Q1, which had roughly two good months before the pandemic hit. Have to guess that Q2 will be worse, with some improvement possible later in the year.
The only business that is working for DIS right now is streaming, which isn't terribly profitable as it's had to increase spend on tech and marketing to get it ramped up. Meanwhile it's facing losses in theme parks, its movie business, and in ESPN and live sports. The biggest advertisers (consumer discretionary) are also struggling, meaning ad revenues will likely be down for some time.
Levering up for the Fox acquisition was unfortunate timing, as net interest expense more than doubled in Q1 to $300 million. It's headed even higher now after issuing another ~$1B in Canadian bonds and an additional $5B credit facility after quarter's end. Those numbers start to add up after awhile, hurting future growth.
Disney is a great brand and company, but it's going to have a tough go of it for the next several quarters, and it doesn't seem that's priced into it yet.
DIS was having trouble growing even before the pandemic hit, as it had flat EPS growth in 2017, then a 24% bump in 2018 on the back of corporate income tax reform, then dropped 19% in 2019. It's currently projected to drop 54% in 2020, and in the current economy it may end up even worse than that. It just reported a GAAP EPS of just $0.26 for Q1, which had roughly two good months before the pandemic hit. Have to guess that Q2 will be worse, with some improvement possible later in the year.
The only business that is working for DIS right now is streaming, which isn't terribly profitable as it's had to increase spend on tech and marketing to get it ramped up. Meanwhile it's facing losses in theme parks, its movie business, and in ESPN and live sports. The biggest advertisers (consumer discretionary) are also struggling, meaning ad revenues will likely be down for some time.
Levering up for the Fox acquisition was unfortunate timing, as net interest expense more than doubled in Q1 to $300 million. It's headed even higher now after issuing another ~$1B in Canadian bonds and an additional $5B credit facility after quarter's end. Those numbers start to add up after awhile, hurting future growth.
Disney is a great brand and company, but it's going to have a tough go of it for the next several quarters, and it doesn't seem that's priced into it yet.