Summary
- Disney looks set to reopen its iconic theme parks located in Orlando on 11th July 2020, and it looks like the NBA is coming to play with Mickey.
- Near-term headwinds persist, but pent-up demand and safety measures should see the parks successfully operating at ~50% capacity for the rest of 2020.
- The long-term growth prospects of Disney are intact and the stock's undervaluation warrants an investment.
- I rate Disney a buy at ~$125.
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Source: www.insidethemagic.net
Investment Thesis
Disney (DIS) is a magical company whose business has been heavily disrupted by the coronavirus pandemic. As a result, the market is undervaluing the entertainment giant. However, the pessimism surrounding the stock has created an excellent opportunity for long-term investors to buy a fantastic business with a wide moat at a reasonable price.
My team and I have been bullish on Disney since March and were buying in the $90s and early $100s. However, the ship has not sailed yet, and there's much more room for Disney to rally. My investment thesis is summarized below:
- The reopening of the economy will allow Disney to restart its Parks business (at reduced capacity), which will, in turn, provide investors with future business visibility, thereby inspiring confidence and igniting animal spirits in the stock.
- The uncertainty and pessimism surrounding Disney have unreasonably punished the stock, sending it well below intrinsic value (i.e., the present value of its lifetime of future cash flows). Thus, investors could generate double-digit returns by buying Disney at this price.
- Disney's MOAT is well established, and as the world goes back to a normal life post-COVID-19, the magic land will once again fill its guests' hearts with joy and happiness. Furthermore, the immediate demand for Shanghai's reopening highlights the strength of the human spirit as embodied by fans' desire to enter the park despite the associated risks.
- Disney+ has shown the potential to substantially encroach on Netflix's (NFLX) territory and come out as one of the most dominant streaming platforms in the 21st century. In this vein, Disney+ alone could be worth $150 billion-plus in the next few years.
Bullish Signal: Disney Parks Return This Summer
So we finally have visibility as to when the magic returns, at least in Florida: Disney has proposed to reopen its iconic theme parks in July next month. The Animal Kingdom and the Magic Kingdom will reopen on July 11, with Hollywood Studios and Epcot, following suit on July 15. According to Disney, the reopening will be phased, and capacity will be regulated according to six-feet social distancing guidelines.
