Disney's seismic shift to streaming could be a threat to the stock, trader warns
The Mouse House is going digital.
Disney shares have been on the rise since the company said Monday that it would overhaul its media and entertainment business to focus more squarely on streaming, a notable move for a company that has seen few major transitions in its 97 years.
The stock closed just over 3% higher on Monday at $128.96 after Loop Capital upgraded it to buy from hold, saying downside risks were limited.
"We expect investors will give Disney 'a pass' on both near-term Covid-19 related losses and increased [direct-to-consumer] losses over the next few years," the firm wrote.
One trader, however, is concerned the shift could spell trouble for Disney's stock.
"I don't like this at all. I don't own it. I definitely would not be buying this thing at $130," Mark Tepper, president and CEO of Strategic Wealth Partners, told CNBC's "Trading Nation" on Tuesday. "Maybe I'd get interested under $110."
While he acknowledged the company's need to pivot given its struggles with its theme parks, Tepper warned that centralizing streaming "completely kills the allure of Disney+ for investors."
"The value prop was that Disney wouldn't have to spend a ton of money on content, so, obviously, that would help margins, and now it seems like they're going to be headed in the opposite direction," he said. "I've always thought of Disney as a company that rolls out maybe five blockbusters a year, very high-quality content. Now, I think they're going to have to dilute quality so they can increase quantity."
Unlike Tepper, who didn't see Disney's uptrend lasting long, chart analyst Craig Johnson said the stock had a lot of potential.
"We've reversed a longer-term downtrend … and you can see the recent price action has come back and rechecked that downtrend resistance line, which is now support," Johnson said in the same "Trading Nation" interview, citing the chart below.
"We're starting to rally off of that level and, from our perspective, a close above this 136 level here on the stock is going to open up the shares for another leg higher," Johnson said.
The $136 level is roughly 5% above where Disney closed on Friday. Loop Capital's note also raised the firm's price target on Disney to $150, which is about 16% above current prices.
"I wouldn't rule out Disney yet," Johnson said. "Yes, there's a transformation going on. Yes, it can get a little bit messy. But I think if anybody's got it, Disney can do it. They've got the content. They've got the ability to do it. I wouldn't rule out Mickey and Minnie Mouse here."
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