Walt Disney Co DIS shares were flat on Wednesday after one analyst downgraded the stock and said Disney+ growth won’t be enough to offset the next two years of subpar theme park attendance.

The Disney Analyst

Wells Fargo analyst Steven Cahall downgraded Disney from Overweight to Equal-Weight and cut his price target for $155 to $107.

The Disney Thesis

Cahall has been bullish on Disney since the announcement to shift to a direct-to-consumer streaming model back in mid-2017. While he's still optimistic about Disney’s long-term transformation, he says the company’s Parks segment will be an albatross for the stock for the next two years thanks to the COVID-19 outbreak.

“We forecast zero park attendance for F2H20E and ~50% capacity in FY21 based on crowding limitations,” Cahall wrote in a note.

He said it could take 24 months for Parks attendance to normalize given crowding limitations. Cahall says the Parks segment is still a strong business for Disney in the long term, but investors need to be prepared for a new normal from a financial standpoint for at least the next year or two.

In the near term, Cahall said the Disney board will likely not dial back its heavy investments in its DTC initiatives. Given the company already has relatively high leverage following its Fox Corp FOX, FOXA asset acquisitions, Cahall said the Disney board “will evaluate the dividend.”

Wells Fargo cut its 2020 dividend per share estimate from $1.83 to 87 cents. The firm has also cut its fiscal 2020/2021 EPS estimates from $5.06/$5.91 to $2.66/$2.42.

Benzinga’s Take

Movie theaters, theme parks, and cruise lines have all been shut down completely in the wake of the coronavirus outbreak, applying tremendous pressure to three of Disney’s major businesses.

The silver lining for long-term investors is that the stay-at-home environment may have accelerated Disney+ subscriptions, the service that should be the centerpiece of the Disney bull thesis over time.