Disney stock confounds analysts
Is the Mouse lousing up movies? Wall Streeters are splitDisney shares are almost back to where they traded 10 years ago. That, by the way, is a good thing considering its peers have a long way to go before they can make that claim. Sony, for example, is 40% down from a decade ago, and News Corp. needs to rise another 56% before it's back to where it was then.
Then there's Time Warner, which is in a class by itself. Taking into account its disastrous merger with AOL in 2000 as well as the spinoff of Time Warner Cable and other stock-related events, Yahoo Finance says the conglomerate's adjusted price 10 years ago was about $179 per share. It closed at $23.62 on Tuesday.
The split of Viacom and CBS makes comparisons difficult, but few would argue that Disney's nearly flat performance during the past decade makes it tops among the media biggies.
Disney shares closed Tuesday at $24.32, just 8% less than where they traded a decade ago. So, what can Disney shares do for an encore? Wall Street analysts, collectively, are undecided.
Disney reported what investors deemed a better-than-expected quarter a week ago, encouraging analysts to raise their opinion of the stock. But price targets still vary wildly: The most bearish sees shares falling below $13 during the next year or so, and the most bullish sees them climbing to $35 in a year or two.
The leading bear is Pali analyst Richard Greenfield, who saw little comfort when Disney reported a quarterly profit that dropped 46% year-over-year.
"While investors have an inherent love of the Disney brand and its key brands and assets, we believe Disney's current stock price does not properly reflect the dramatic decline in earnings across the company's operations," Greenfield wrote when he reiterated his "sell" recommendation and $12.50 price target.
Greenfield's concerns are numerous, including his assertion that Disney will struggle to maintain demand at its U.S. theme parks and "the creative struggle Disney is experiencing, particularly on the studio-entertainment side of the business."
Most ominously, Greenfield says the problems Disney face will not go away when the economy improves.
"The economy has nothing to do with Disney making bad movies; in fact, the creative struggles are even more concerning given how strong domestic boxoffice has been year-to-date," he writes.
Leading the bullish charge is Miller Tabak analyst David Joyce, who upped his one-year target on Disney shares from $23 before the quarterly earnings report to $28 afterward. His long-term target remained $35.
Joyce acknowledged that the fact the film studio reported a 97% decline to just $13 million in operating income was disappointing, but he likes the prospects for "Up," "The Princess and the Frog" and "Toy Story 3."
Joyce says "an advertising and consumer spending bottom is likely being formed, which should continue to support Disney stock appreciation as investors will still seek to act ahead of actual positive results."
A more recent bull, Anthony DiClemente of Barclays Capital, says Disney's cable TV networks alone are worth $24 a share, so buyers of the stock are getting the rest of the company almost for free.
After the earnings announcement, DiClemente changed his rating from "underweight" to "overweight" and upped his price target from $17 to $32.
But between Joyce's and DiClemente's optimism and Greenfield's pessimism lay a slew of analysts who don't anticipate Disney shares will appreciate or depreciate too much during the next 12 months.
Wunderlich Securities analyst Martin Pyykkonen, for example, upgraded Disney shares after the quarterly results, but only from a "sell" to a "hold."
Disney's main fundamental challenge for the rest of the year, he said, "is in the studio segment, where its entertainment content is missing the mark at the boxoffice and on home video."
Laura Martin of Soleil sums it up best for those who are neither bulls nor bears on the stock: "Disney trades at a premium valuation, adding to downside price risk. We retain our 'hold' rating, but we are looking for an opportunity to enter this high-quality media name."