Walt Disney & Co. (NYSE :), one of America's most iconic brands, was a staple stock for many pre-pandemic retirement portfolios. The company showed solid growth and an attractive dividend.
Disney offered a winning combination for long-term investors. Its core business, which included theme parks and movie theaters, generated hefty amounts of cash, which the House of the Mouse used for dividend payments and to invest for growth.
But that model was unraveled during the pandemic, forcing the company to shut down the attractions on which the brand was built and to adopt a variety of cost-cutting measures, including the leave of thousands of workers and the elimination of dividends.
During the most recent period, total sales at Disney declined 22% to $ 16.25 billion, with sales drastically declining in the company's media and entertainment distribution as well as in the parks, experiences and product segments. In the latter group, turnover fell by more than half.
For long-term investors, the biggest question going forward is whether California-based Disney will ever return to normal once the pandemic is under control.
Judging by the boom in Disney stock – which has risen more than 90% in the past year – it appears that after a devastating year, investors have priced in a more profitable future for the world's largest entertainment company . The stock closed at $ 185.53 on Tuesday after hitting an all-time high earlier this month.
Journey To Normal
There is some early evidence that Disney is slowly returning to normal as the introduction of vaccines in the US increases. On March 17, Disney announced that it has plans to reopen the Disneyland and Disney California adventure parks on April 30, after keeping it closed for more than a year.
The company said more than 10,000 cast members would return to work. The park in Orlando, Florida, Walt Disney World, has been open since July last year with some restrictions.
With these reopenings, it has become more exciting for Disney that the pandemic has accelerated the company's expansion into digital entertainment, making it a major player in the burgeoning video streaming market.
The Disney + streaming service, which competes with Netflix (NASDAQ 🙂 and other newer entrants, had 100 million subscribers this month as it aims to reach 260 million by 2024. Analysts at Goldman Sachs are among the biggest bulls on Disney stock has set a target price of $ 225 for its stock. They believe that Disney & # 39; s rich pipeline of new original content and other proactive measures should contribute to additional subscriber growth.
Thus, strong demand for the parks implies that Disney's core businesses remain well positioned for a speedy recovery as the economy reopens. According to Goldman, the long-term viability of these legacy businesses is intact.
KeyBanc analyst Brandon Nispel said Disney's streaming efforts are "rapidly scaling up and growing faster than expected," with a "long runway" for growth, while the parks segment is showing "strong" efficiency, with a more profitable future ahead. fades as soon as the visitors return. .
Bottom Line
Disney has certainly lost some of its appeal as a "fortress stock" for retirees over the past year when it was forced to abolish its dividends. But that shock, in our opinion, has accelerated the company's shift to streaming and made it a more efficient entertainment option.
Disney is unlikely to recoup its dividend anytime soon, but there are plenty of other reasons for retirees to keep this stock in their portfolios.
