Walt Disney Stock Hits 52-Week Low as U.S. Markets Close Lower

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UPDATED: Wunderlich Securities cut its rating from "buy" to "hold" and its price target from $42 to $39, citing studio concerns and financial guidance that was "less than magical."

NEW YORK - Shares of the Walt Disney Co. fell to a new 52-week low in Wednesday trading as U.S. stock markets and other entertainment stocks closed sharply lower.

After Tuesday afternoon's latest quarterly earnings, Wunderlich Securities analyst Matthew Harrigan cut his rating on Disney's stock on Wednesday from "buy" to "hold" and his price target from $42 to $39, citing studio concerns, ESPN and theme park costs and financial guidance that he said was "less than magical."

And Nomura analyst Michael Nathanson reduced his Disney stock price target by $3 to $42 and lowered his earnings estimates. "Recently, Disney has not lived up to the earnings-beatings behavior it is known for," he wrote. "Although inexpensive, given both the high quality of its cable assets and low park profitability, the stock is likely to be range-bound unless the macro outlook brightens or earnings begin to beat expectations again."

Disney closed down 9.1 percent at $31.54 after earlier hitting a 52-week low of $29.60.

Other big entertainment stocks also fell, with News Corp. down 5.8 percent, CBS Corp. down 5.4 percent and Time Warner 4.6 percent lower. The broad-based S&P 500 index ended the day down 4.4 percent.

Disney management, led by CEO Bob Iger, said Tuesday that higher TV programming spending at ESPN and ABC, lower TV licensing at the broadcasting unit and tough studio comparisons will affect profit in the current quarter by 7 cents per share.

"The 7 cents earnings albatross guidance for the fiscal fourth quarter, largely off studio comps and ESPN cost hikes (as well as year-over-year ABC syndication), may be more indicative of long-term business stresses than timing," Harrigan said.

"Notwithstanding franchises, such as Pirates and Disney Pixar, the studio is showing poor relative ability to monetize its creative output relative to Warner Bros. and 20th Century Fox," he continued. "Management commented on the call that retransmission receipts inclusive of license fees from affiliate stations could reach $400 million to $500 million by fiscal 2015. This equates to 35 cents to 40 cents on a monthly basis per U.S. multichannel home, well below the $1 per month all-in bogey suggested by News Corp. COO Chase Carey, albeit with the latter in a better ratings position among 18-49 year-olds in prime-time, and with ABC admittedly lacking marquee sports programming."    

But Miller Tabak analyst David Joyce said "there’s no good reason" for Disney's sharp decline on Wednesday. "The company is seeing positive broadcast and cable network ad revenue, and parks hotel bookings minus 2 percent is actually better than they’ve forecast in previous earnings calls," he said.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai