Disney Downgraded by S&P Over Concerns Parks Business Will Be Slow to Recover

“Disney’s theme parks won’t likely return to normal capacity utilization” even after stay-at-home orders are lifted, S&P says

Last Updated: April 23, 2020 @ 3:51 PM

Walt Disney Co. has been downgraded by S&P Global Ratings on Thursday due to the impact the coronavirus outbreak has had on its parks business and content production. The ratings agency warned Disney’s theme parks won’t return to normalcy anytime soon, even after stay-at-home orders have been lifted.

“Disney’s theme parks won’t likely return to normal capacity utilization at the same rate as the overall economy even after stay-at-home restrictions are eased and the theme parks are allowed to reopen,” S&P said. “Continued government-imposed social distancing and, longer term, consumer concerns about attending public events will likely retard theme park attendance.”

S&P lowered Disney’s credit rating from A to A-.

Disney’s share price opened slighlty lower on Thursday, dropping nearly 1% to $100 per share.

The entertainment giant had to temporarily shut down several parks last month, including Disneyland and Disney World, due to the pandemic. Disney has also bumped back several theatrical releases it had scheduled over the next few months.

Thursday’s downgrade comes after Credit Suisse and UBS both downgraded Disney earlier this week. UBS analyst John Hodulik downgraded Disney stock from a “buy” to “neutral.” Credit Suisse’s Doug Mitchelson also arrived at “neutral,” though his rating is down from an “outperform” label.

Hodulik wrote: “We are downgrading shares of The Walt Disney Company to Neutral and lowering the price target to $114 given the COVID-19 outbreak and subsequent weakness in the economy. While the Media/Studio businesses will see declines, Parks are the largest source of earnings revisions. … Park re-opening now Jan 1 base case; profitability likely impaired until vaccine. We believe Parks’ profitability will be impaired for a longer period of time given the lingering effects of the outbreak and now assume an opening date of Jan. 1 as our base case. That said, the economic recession plus the need for social distancing, new health precautions, the lack of travel and crowd aversion are likely to make this business less profitable until there is a widely available vaccine.”

Hodulik added that the shutdown of live sports has also impacted Disney, whose ESPN and ABC would normally be airing the NBA playoffs right about now. “Postponement or cancelation of the NFL or college football would be another blow and likely impact affiliate revenues given greater cord-cutting and distributors’ reluctance to pay.”

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