Disney Gets Analyst Downgrade: "The Stock Has Risen Too Far Too Fast"

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A view outside the Disney store in Times Square during the coronavirus pandemic on April 20, 2020 in New York City.

Imperial's David Miller cuts his rating to "underperform," arguing stock gains have been "due simply to excitement around the prospects of the domestic theme parks re-opening."

Imperial Research analyst David Miller on Thursday downgraded his rating on the Walt Disney Co. to from "in-line" to "underperform," writing: "The stock has risen too far too fast and the performance is due simply to excitement around the prospects of the domestic theme parks re-opening."

He also cut his price target on Disney's stock to $105 from $107 and his fiscal year 2020 and 2021 estimates "due to a more conservative outlook for theme park volumes than previously assumed, as well as lower film ultimates."

Miller noted that Disney shares have risen 21.2 percent over the last four weeks, advising investors to "take profits, as Disney now looks like a name that should be 'traded,' rather than 'owned,' at least for now."

He had lowered his rating on Disney from "outperform" back in June 2019. "Our rationale for the ratings change at the time, long before the outbreak of COVID-19 and its derivative effects, was simply due to valuation and the fact that the stock had performed consistent with our previous rating," he wrote Thursday.

At the time, fiscal 2020 and 2021 earnings consensus estimates for Disney were $6.46 per share and $7.51 per share, respectively. "Those consensus figures were established under the notion that Disney's studio business would continue operating at full tilt, and that both domestic parks operations, as well as the cruise line and all the hotels, would continue operating at somewhere between 88 percent and 92 percent capacity," Miller explained.

The Imperial Research analyst added: "Now, the situation has radically changed. "Fiscal year 2020 and 2021 consensus estimates have now moved to $1.73 a share and $3.44 a share, respectively, or less than half of where those estimates stood 12 months ago. And yet, the stock is only about $20 per share shy of where we established that ratings change."

Addressing film ultimates, Miller wrote on Thursday: "With movie theaters around the country likely to re-open in the next three to five weeks with limited occupancy, and with our concerns about attendance as it applies to families with small children ... we are decreasing our fiscal 2020 and 2021 theatrical ultimate assumptions for select Disney-branded titles which are naturally designed to appeal to all age groups, but may not see attendance participation from families with children aged 4-10."

Those films include MulanDeath on the Nile, Black Widow and West Side Story. "We are keeping intact ultimates for The Empty Man (horror thriller), New Mutants and Deep Water (horror thriller)," Miller said.