With Walt Disney Co’s theme parks shuttered, its cruise ships docked and the company losing tens of millions of dollars a day, money manager David Sather made a tough call in the second quarter.
He sold all 153,875 of his Disney shares.
“Even with social distancing, we couldn’t see how the parks were going to be doing well,” said Sather, president of the Sather Financial Group in Victoria, Texas. “Not when your profitability is predicated on having massive amounts of humans crammed into your theme parks.”
Yet in one of the more surprising turnabouts in this Covid-19 crazy year, shares of the world’s largest entertainment company have hit new highs — despite $5.4 billion in losses over the past two quarters. Disney shares are up 20% for 2020 and have more than doubled from lows set in March, when coronavirus fears tanked the market.
Sather wasn’t alone. More than 150 institutional investors have liquidated their entire Disney holdings this year, according to data compiled by Bloomberg, selling a total of 5.38 million shares now valued at close to $1 billion. They ranged from Parnassus Investments, which unloaded 1.86 million shares because of the Covid-19 uncertainties, to smaller investors like Prescient Management Co., which sold 9,000 shares.
For investors still in the stock, the question now is whether the rally will continue. BMO Capital Markets analyst Daniel Salmon lowered his rating on Disney to “market perform” from “outperform” this week, citing the huge run-up. “We step to the sidelines,” he wrote, recommending streaming industry leader Netflix Inc. his top pick instead.
Disney’s losses, soaring long-term debt and the suspension of its dividend create a dilemma for investors focused on fundamentals like earnings and return on capital. The share price has risen largely due to the success of its streaming video services, such as Disney+, which launched a year ago in November and now has nearly 87 million global subscribers.
The company needs to keep investing in its streaming business, even if that means losses and no dividend, said Darren Pollock, portfolio manager at Cheviot Value Management Inc. in Beverly Hills, California. He kept his 15,400 Disney shares.
“It’s incumbent on the company to create a strong direct-to-consumer platform to compete with Netflix and others,” Pollock said.