Disney Stock Falls as Analysts Highlight Near-Term Challenges

Walt Disney Company Logo Lucas Films Logo Split - H 2012

Walt Disney Company Logo Lucas Films Logo Split - H 2012

After the entertainment giant's quarterly earnings report, one says ad and other pressures will "depress near-term earnings growth and Disney's premium valuation."

The Walt Disney Co.'s stock fell more than 5 percent in early Friday trading as analysts said it might come under pressure in the near term following cautious comments on the entertainment giant's quarterly earnings call late Thursday.

Among other things, management outlined advertising headwinds at ESPN and described the current period as a transition time between several years of investment and increased growth in the future.

As of 9:45 a.m. ET, Disney shares were down 5.3 percent at $47.39. During the past year, the stock has traded between $33.28 and $53.40.

Janney Montgomery Scott analyst Tony Wible downgraded Disney's stock from "buy" to "neutral," saying in a report that "ad deceleration and reinvestments [of theme parks profits] cloud growth."

This will "depress near-term earnings growth and Disney's premium [stock] valuation," he concluded.

But Wible also emphasized the entertainment giant remains on the right track. "Longer term, Disney should benefit from new market opportunities tied to park expansion, new networks, new franchises, new cruise ships, new consumer concepts and growing exposure to emerging economies," he said.

Susquehanna Financial Group analyst Vasily Karasyov similarly argued that near-term headwinds should limit upside for Disney's stock. "Multiple expansion, which has driven Disney's stock price in 2012, is hard to argue at this point," he said in maintaining his "neutral" rating and $49 price target.

Sanford C. Bernstein analyst Todd Juenger emphasized growth opportunities ahead. "Longer term, ongoing capital projects, international (across all divisions) and studio/consumer products are all upside," he said. "Presuming the stock trades down [on Friday], this could be the 'entry point' many investors have been waiting for."

He minimally lowered his target price on Disney's stock by $1 to $56 but maintained his "outperform" rating on it, which is similar to other Wall Street observers' "buy" rating.

Nomura analyst Michael Nathanson shrugged off near-term challenges and concurred more directly, saying "investors should not give too much weight to one quarter and are often rewarded by taking a longer-term view on Disney."

But he also lowered his price target by $1 to $54, while maintaining his "buy" rating, predicting that Disney shares "could tread water" until the next earnings report.

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