Disney Stock Drops After Two Analyst Downgrades

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Walt Disney CEO Bob Chapek

The Hollywood giant's stock "will remain in a more narrow trading range given a remarkable lack of operational visibility," says Credit Suisse.

Shares of the Walt Disney Co., led by CEO Bob Chapek and executive chairman Bob Iger, dropped in early Monday trading after downgrades from Credit Suisse and UBS.

The stock was down 3.4 percent to $103.01 as of 9:40 a.m. ET.

Credit Suisse analyst Douglas Mitchelson in a report entitled "Parks Downside Outweighs Streaming Upside, For Now" cut his stock rating from "outperform" to "neutral" and his price target from $140 to $116, arguing that the downside risk for the Hollywood conglomerate's theme parks business amid the novel coronavirus pandemic will be more pronounced over the near-term than the growth opportunities of its streaming business, including Disney+. The price target reduction was driven by "a 20 percent uncertainty discount related to lack of visibility for Disney’s leisure businesses," he said.

"Disney’s 24 percent rally the past month was well deserved as liquidity concerns appeared overblown, and we continue to see a path to about $160 per share for Disney the next few years — streaming value creation should easily outstrip linear TV declines, and we expect a full rebound in theme park and Hollywood operations over time," he wrote in his report.

Mitchelson added, "However, near- to mid-term, we expect Disney will remain in a more narrow trading range given a remarkable lack of operational visibility, expected severe cuts coming to Street estimates, and a now more equally balanced mix of positive and negative catalysts."

Mitchelson said his fiscal-year 2021 earnings estimates are currently 29 percent below the Wall Street consensus. 

UBS analyst John Hodulik, meanwhile, downgraded his rating on Disney shares from "buy" to "neutral," arguing in his report "The Eye of the Storm" that the pandemic was hitting every Disney division, especially the theme parks units that is a core part of its business. He lowered his Disney stock price target from $162 to $114.

"The COVID-19 outbreak and subsequent lockdown have closed theme parks, the box office, sports leagues and retail stores and as result is impacting every major segment at the company," Hodulik wrote. He had previously said that theme parks would be affected longer-term by the virus crisis, writing: "The post-lockdown world could see dramatically lower attendance for a prolonged period of time."