Disney's Stock Drops After Earnings Report

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Nomura analyst Michael Nathanson says "Mickey Takes a Breather," but still feels "comfortable that underlying business momentum will drive results in the year ahead."

NEW YORK -- Shares of the Walt Disney Co. declined in early Wednesday trading after the entertainment giant's latest quarterly earnings report late Tuesday was weaker than many analysts had expected.

But despite expressing disappointment with the latest figures, a range of analysts suggested that there is more upside for Disney, which has in the past often exceeded Wall Street expectations, and its stock.

As of 10:45 a.m. ET, Disney's stock was down 3.8 percent at $42.26. It closed the day down 5.4 percent at $41.52.

"Results were broadly below expectations," said Morgan Stanley analyst Benjamin Swinburne who continues to have an "overweight" rating and $50 price target on Disney's stock.

Nomura Securities analyst Michael Nathanson used the headline "Mickey Takes a Breather" for his report.

And Stifel, Nicolaus analyst Drew Crum spoke of "a rare miss for Disney."

Disney, led by CEO Robert Iger, posted latest quarterly results that included unusual items that were a drag on its profit, such as a write-down for film flop Mars Needs Moms, disruptions from the tsunami in Japan, a late Easter and the acquisition of social gaming firm Playdom.

"We accounted for these but underestimated [their] impact," explained Crum who has a "hold" rating, similar to a "neutral," on Disney.

Despite the weaker earnings, many on Wall Street suggested investors would look beyond the negative impact of unusual items.

"The earnings are not as bad as they initially appear," Evercore Partners analyst Alan Gould said in an investor note early Wednesday.

"While many of the factors in the fiscal second quarter were one time in nature, investors may be concerned about limited positive earnings revisions in the upcoming quarters," suggested Nathanson, but emphasized: "We maintain our 'buy' [rating] and still feel comfortable that underlying business momentum will drive results in the year ahead."

He has a $48 target price on Disney shares.  

Barclays Capital analyst Anthony DiClemente echoed that, saying "coming results may have the strength of Thor." He has an "overweight" rating on the stock and a $52 target price.

"We think too much can possibly go right for Disney," DiClemente said. "At [theme] parks, upside from pricing and new ships/properties should support an upward inflection. At media networks, ESPN ad sales continue to grow at the fastest pace in the group. At the studio, four summer tentpole films should bolster results over the next few quarters."

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