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PreMarket Prep Stock Of The Day: Disney

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

· 10/13/2020 13:47

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

Walt Disney Co (NYSE:DIS) took a direct cue from Dan Loeb. Last week, Loeb sent a letter to the company suggesting suspension of the $3 billion annual dividend and redirecting the capital into content production and acquisitions for Disney’s direct to consumer business.

After the close on Monday, the company announced it was doubling down on its streaming business through a reorganization of its media and entertainment business. The move by the company and the Street’s reaction makes it the PreMarket Prep Stock Of The Day.

After ending Monday’s session at $124.97, the issue raced to $132.47 in after-hours trading (a level it has not seen in the regular session) and retreated to end the session at $131.25. It dipped to $127.90 off the open, but is trading above and below $130 as of 1:30 p.m. ET.

'Fast Money' Talks Netflix-Like Valuation: "Fast Money" commentators Tim Seymour and Guy Adami put an interesting spin on the move, speculating what the price of Disney would be if it traded to a similar multiple to that of Netflix, Inc. (NASDAQ:NFLX). Obviously insinuating that if that was the case, the issue would be trading at a level much, much higher than its current price.

At this time, the company trades at a forward price/earnings of 16.45 compared to that of Netflix that trades at a forward price/earnings ratio of 62.11.

Dennis Dick Suggests It Already Does: The move and analysis was discussed on Tuesday’s show. Co-host Dennis Dick explained in detail why it may be possible the issue already trades at an expanded multiple than it's currently listed at.

Dick described the move as “financial engineering.” Disney World is operating at a 25% capacity and Disneyland is closed. The studios are a mess with production limited and its ESPN unit is being decimated by horrible sports programming viewership. Finally, a reduced dividend may eventually be eliminated.

"With the parks being 40% of revenues," said Dick, "can the one business that is doing well [Disney+] make up for all the other losses?"

Spencer Israel viewed the move as an abandonment of movie theaters and the negative effects on theater stocks was discussed.

Dick concluded that the stock was trading at the same price it was last year, $130, when it was operating on all cylinders. With regards to the Netflix valuation comparison, he questioned whether or not Disney+ was even as good as Netflix.

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The full discussion on the issue from today’s show can be found here: