Both media giant Disney (NYSE 🙂 and international coffee chain Starbucks (NASDAQ 🙂 have seen their company turned upside down by the worldwide coronavirus outbreak and worldwide lockdowns.
Every company, considered a symbol of American consumerism, has suffered massive losses this year as customers have stayed indoors and forced the pandemic to shut down their operations. But as economies reopen worldwide, both companies are being watched closely as a barometer of consumers' willingness to resume normal lives and reopen their wallets.
Stocks of each could also provide an attractive risk-return proposition for investors, especially when there is significant uncertainty about the future path of the pandemic. Here's a deeper look:
Disney: Reopening Gaining Pace
The House of Mouse is in the midst of a nasty recession. The core business, which thrives on shared group experiences, suffers from the worldwide spread of COVID-19 that forced the closure of its theme parks, resorts, cinemas and cruises worldwide.
Hurt by this unprecedented challenge, Disney reported a $ 1.4 billion deficit in its operating income for the industry, including a $ 1 billion hit from only closed theme parks and the rest of other business units.
Despite this devastating impact on its global operations, investors have begun to take a positive stance on Disney stock, betting on the company's new video streaming business and the gradual reopening of its entertainment assets.
The shares of the Burbank, California-based company, after dropping more than 40% in mid-March, have since gained significant ground. They closed at $ 116.22 on Monday, down 17% for the year.
A bright spot in this otherwise gloomy view: the company's recently launched Disney + video streaming service. Supported by orders at home, the service is expanding rapidly. It has attracted over 56 million subscribers since its launch in November. While Disney + is still burning money, it is in a strong growth mode and can become one of the company's main revenue-generating units in the post-pandemic world.
According to a recent statement by Goldman Sachs, investors underestimate the power of the Disney + service, which is expected to reach 150 million subscribers by 2025. The Wall Street firm started Disney coverage with a buy score and a price of $ 137 per share. target. That is more than a 14% increase from the Friday closing of the stock.
"We also expect DIS & # 39; s Parks and Studios segments to fully recover after COVID and to undervalue synergies with DTC (direct-to-consumer)," Goldman Sachs analyst Brett Feldman told customers.
Last week, Disney, the world's largest amusement park operator, opened its Magic Kingdom and Animal Kingdom parks in Florida to the general public after a four-month shutdown.
"When we opened our reservation system, we were quite happy with the question we saw and that question will not only appear in the short term, but also well into 2021," Chairman Disney Parks Josh D & # 39; Amaro said in a interview with Bloomberg TV.
"Our guests, they trust us, they trust that we will create an environment where they can still experience the magic."
Starbucks: Restructuring In Full Swing. .
Shares of the international specialty coffee supplier have fallen 15% so far in 2020, less than many restaurant peers. On Monday the stock closed at $ 72,65. It also offers an annual dividend yield of 2.21%.
According to the latest guidelines from the company, it will decrease by as much as $ 3.2 billion, while operating profit will decrease by as much as $ 2.2 billion in the period. The outlook for food chains, including Starbucks, remains uncertain in the post-pandemic world where some consumers are likely to change their behavior permanently and not visit restaurants.
That said, Seattle-based Starbucks is an innovative company and it is quickly changing its business model to counter the pandemic-related slowdown.
Starbucks plans to accelerate the rollout of its & # 39; pickup & # 39; store concept, with smaller locations with no customer placement, the company told investors last month.
"Although we originally planned to implement this strategy over a three to five year period, rapidly evolving customer preferences are accelerating the need for this concept."
The pandemic has forced Starbucks to rethink its central concept as a "third place" away from work and home where customers can relax, it said.
Starbucks expects to open 300 net new stores in America this fiscal year, half the previous estimate. That includes the closure of 400 outlets operated by the company over the next 18 months, in addition to opening "a larger number of new, repositioned stores in different locations and innovative store formats."
Bottom Line
We love both Disney and Starbucks for value investors who want to take advantage of their current weakness and keep them in their portfolios in the long term. Both companies have tremendous assets and brands that need to weather the current recession and emerge once the pandemic is under control.
At the same time, it is clear that their earnings will not return to normal until a global cure for the coronavirus is available. For long-term investors with a horizon of five years or more, the stock of both Disney and Starbucks remains a good bet.
