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Disney Stock Is Overpriced as Coronavirus Challenges Mount

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Walt Disney (NYSE:DIS) stock had been an investor favorite until mid-March when almost every aspect of the firm’s diversified business was slammed by the pandemic. Unlike the wider market, Disney hasn’t made its way back to its February highs.

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Instead, investors have been cautious about the media conglomerate as it struggles to adapt to the challenges that the novel coronavirus presents.

But the firm’s reopening highlights just how difficult it will be for DIS stock to make a comeback. While management’s efforts to operate safely during the pandemic have been valiant, the bottom line is that the company’s parks division depends on assembling thousands of people together.

That’s something you just can’t do right now.

Reopening Is Key to DIS Stock Rebound

DIS stock is down 22% so far this year, though the firm has been able to claw back $31 per share since its mid-March bottom. The reopening of Disneyland Orlando was meant to be a key driver for the stock moving forward, but soaring coronavirus cases in Florida could be a problem for the media conglomerate.

Disney has been as cautious as possible when it comes to letting people back into its parks. From strict mask requirements to new ways to wait for rides, the firm is doing everything it can to ensure its theme park isn’t the source of a Covid-19 outbreak.

But with case numbers rising to record highs in Florida, it seems inevitable that the “Happiest Place on Earth” will eventually fall victim to the pandemic.

If Disneyland Orlando is able to reopen successfully without triggering an outbreak, it will be a sign of strength for the future. If Disney can operate there, amid a raging pandemic, it can likely operate anywhere even without a vaccine.

On the other hand, if Disney is forced to shutter once again, there could be a correction on the horizon for DIS stock. The firm has faced criticism for putting profits over public health by reopening too quickly, so any missteps will be under the microscope.

Disney’s Parks segment makes up a huge part of the company’s overall revenue. Another prolonged shutdown would be devastating. 

How to Play Disney Stock

The Florida reopening is certainly something to watch, but from the sidelines. DIS stock will likely recover in the long term, but the firm has been hit from three sides by the pandemic. In addition to its theme parks, Disney’s movie and sports arms have also been dented by the lockdowns.

It’s going to take time for Disney to recover— especially with the pandemic dragging on.

Even if Disneyland’s grand reopening doesn’t spark another outbreak, Disney stock is still facing plenty of other challenges. ESPN, for one, is struggling amid a thin sports schedule.

Most were hoping that sports would resume in earnest by the end of the summer, but baseball games have already ground to a halt as coronavirus outbreaks threaten teams. Many are expecting basketball to follow suit and delay re-starting to protect players’ health.

As ESPN is the lynchpin of Disney’s Media Networks Segment, further sports delays will hit the company hard.

When DIS Stock Is a Buy

For now, there are too many factors threatening to take DIS stock lower. From reduced sports schedules to constrained theme parks, Disney still has a long way to go before being back on a solid road to recovery.

Instead, investors might want to wait on the sidelines for DIS stock to drop back below $100, a distinct possibility if lockdown measures resume and its theme parks close. At that level, investors can be sure the challenges presented by the pandemic have been priced in making Disney a much better long-term recovery bet with far more upside than where it’s trading today. 

Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she did not hold a position in any of the aforementioned securities. 

The post Disney Stock Is Overpriced as Coronavirus Challenges Mount appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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