Disney Shares Fall Despite Positive Reactions to Lucasfilm Deal

3:29 PM PST 10/31/2012 by Paul Bond , Georg Szalai

Media conglomerates in general underperform the broader markets as trading resumes in Hurricane Sandy's wake.

Shares of the Walt Disney Co. closed 2 percent lower on Wednesday, the first day trading since the media conglomerate said it would purchase Lucasfilm for $4.05 billion.

Disney underperformed relative to its media peers, which in turn underperformed the broader markets on Wednesday, which marked a return to trading after a two-day hiatus due to Hurricane Sandy.

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While the S&P 500 eked out a small gain Wednesday, Disney dropped 2 percent to $49.12. Comcast and Time Warner, meanwhile, were each off fractionally. Sony, CBS and Viacom were down 1 percent, 1 percent and 2 percent, respectively and News Corp. managed a fractional gain.

Disney shares declined amid several reports from analysts who praised the company for its acquisition of Lucasfilm, despite a high price that could knock earnings down a tad in 2013 and 2014.

"Our initial, necessarily abbreviated [due to Hurricane Sandy], analysis says this deal looks more promising than the Marvel acquisition in 2009, a deal now widely lauded," Lazard Capital Markets analyst Barton Crockett said in a report.

Disney said the deal would dilute its earnings in the low single digit percentage range in 2013 and 2014 before becoming accretive to earnings when the next Star Wars movie comes out in 2015.

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"For about the same purchase price [as Marvel], Disney is buying another big, young male skewing franchise to expand its diversification from young females," Crockett said.

Barclays Capital analyst Anthony DiClemente also invoked Marvel, which Disney bought three years ago for $4.24 billion, as well as Pixar, which Disney bought for $7.4 billion in 2006.

"Marvel characters have flourished under the stewardship of Disney and its management team, at least in part evidenced by the summer's blockbuster success of The Avengers and its ancillary contributions," DiClemente wrote.

The analyst, though, acknowledged the near-term hit to earnings and adjusted his financial estimates accordingly, maintaining his $52 price target on Disney.

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"As was the case for Disney's Pixar and Marvel acquisitions, although near-term financial returns will be difficult to justify, long-term strategic benefits may crystallize over time."

Davenport & Co. analyst Michael Morris titled his bullish report: "Disney Buys Star Wars, Further Bolstering Content Powerhouse."

"We like this acquisition, the analyst wrote, before acknowledging that the transaction “is not inexpensive.”

“The valuation will be debated, wrote Morris, “however with Pixar, Marvel and now Star Wars franchises to compliment the Disney brand, [the company] should provide a powerful kids and family content pipeline for many years.”

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