Disney is one of several companies reeling from the coronavirus-induced lockdown. The extent of that damage may soon be realized.
Poor Disney (NYSE:DIS) earnings will hit the Dow Jones badly.
Due to announce its fiscal Q2 earnings after Tuesday’s close, Disney will likely reveal that the coronavirus lockdown has harmed its overall business. In response, the Dow Jones and the U.S. stock market will suffer, with pessimism creeping in from tomorrow.
Disney’s earnings will suffer as a result of closed parks and cinemas. And with such venues likely to see reduced demand for long after official lockdowns end, Disney’s fate underlines just how long it will take the economy to return to normal.
For many months, Disney has provided a big boost to U.S. equity markets. When it posted mixed Q3 2019 results on August 7, the Dow plunged 500 points. In July, it was one of the ten biggest earners responsible for driving the Dow to 27,000.
When it goes up, the Dow Jones tends to go up. And vice versa.
Unfortunately, Disney–and the Dow–now looks set to go down if dismal quarterly earnings expectations are realized.
Analysts forecast Disney’s earnings per share to plunge to 88 cents, down 57.9% over a year ago.
Likewise, analysts are beginning to downgrade Disney’s stock. On Monday, MoffettNathanson’s Michael Nathanson downgraded Disney from “buy” to “neutral.” His explanation makes for some sobering bedtime reading:
There are a number of risks that could lead this unprecedented event to have a longer impact, with earnings revisions massively skewed to the downside … Our Disney downgrade is also an admission that we believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections.
Nathanson closes his report by warning Disney of an “unrivaled earnings risk for the foreseeable future.”
And given that Disney’s performance has so often driven the Dow Jones, we should expect the index to struggle following Disney’s Q2 report.
The Dow has been struggling to capitalize on its post-March recovery for several days. As CCN reported, “the Dow Jones struggled sideways” on Monday amid mounting U.S. coronavirus cases. It closed at 23,749, essentially where it was a month ago.
Minus some minor rallies, the Dow has effectively been flatlining since early April. The Fed’s “unlimited” QE spending is keeping it afloat despite the lack of decent economic news.
This is why a dismal Q2 earnings report from Disney is dangerous for the stock market. The Dow Jones is particularly fragile right now, and a stinking report from Disney could set off a wave of pessimism.
While Disney’s streaming service seems to be doing well, its parks are closed, cinemas are shut, and ESPN (which it owns) has no sport to broadcast. It has also furloughed 100,000 employees, cut executive pay in half, and tapped some $13.25 billion in credit over the past two months.
So not only will its Q2 earnings be bad, but so too will its Q3 and Q4 postings. Even if lockdowns officially end next month, Disney’s parks aren’t going to be doing roaring business for some time.
By extension, Disney could be harming the Dow for quite some time, too.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment advice from CCN.com.
This article was edited by Sam Bourgi.
Last modified: May 5, 2020 12:54 PM UTC