Analyst Lowers Disney Stock Rating to 'Neutral'

Bob D'Amico/ABC

He cites a price premium compared with peers, risk of pay TV sub erosion, sports rights costs and "challenging" film unit comparisons

Guggenheim Securities analyst Michael Morris on Thursday downgraded his rating on the stock of the Walt Disney Co., led by CEO Bob Iger, from "buy" to "neutral." He also cut his price target by $9 to $87.

"Disney continues to deliver strong performance across nearly all segments, but we see shares as reflecting this strength" at a 13 percent price premium to industry peers, he wrote in a report that also cited a risk of pay TV subscriber erosion, the cost of sports rights and "challenging" film unit comparisons ahead.

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"We continue to view Disney as the strongest collection of branded media assets and long-term content rights in our industry," Morris said. "The company's content cycle appears robust into fiscal year 2016 and beyond, though we believe risk related to rising sports-rights cost, pay TV subscriber trends and consumer travel is higher than current valuation implies." Plus, he cited "challenging" fiscal year 2015 film comparisons despite a "robust" slate as another "valid company-specific" concern relative to Wall Street consensus expectations.

The analyst touted Disney's "strong core brands" and rising retransmission consent fees and the upcoming opening of the Shanghai Disney theme park. But Morris concluded: "Our concern at current valuation levels is that investors are well versed in [the company's] impressive list of positive drivers."

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About sports rights, the analyst wrote: "Extensive high-cost rights rely in part on subscription fees to be profitable. These fees may continue to grow; however, we see relative risk in the near-term as investors digest declines in traditional video sub metrics."

Disney shares on Wednesday closed at $82.08. They were down 2.4 percent at $80.12 in pre-market activity at 7:20 a.m. ET.

Email: Georg.Szalai@THR.com
Twitter: @georgszalai

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