Disney Downgraded to Sector Underperformer
LOS ANGELES (Dow Jones) -- Walt Disney Co. was downgraded to sector underperformer on Thursday, on concerns of a lackluster 2007.
CIBC World Markets analyst Jason Helfstein wrote in a note to clients that the rest of 2006 is expected to be strong for the media and broadcasting giant, but his analysis of 2007 suggests slower growth. Helfstein's previous rating was sector performer.
The anticipated weakness is expected to come from fewer shows in syndication, difficult ratings comparisons at ABC, slower growth at theme parks and a full year of Pixar dilution, resulting in single-digit earnings per share growth, he said.
"Double-digit earnings per share growth may only be possible from cost cutting," Helfstein wrote in his note.
The rating took a large bite out of Disney (DIS) shares, which tumbled 3.6% to a session low of $28.84 at one point. Shares recovered slightly in recent trades and were down 3%.
The downgrade may be curious to some, given the glowing reports Disney received on Monday after its "Pirates of the Caribbean: Dead Man's Chest" set a new box-office record, raking in $135 million over the weekend. That prompted some analysts to write upbeat reports on how the film could boost company profits.
"We continue to believe Disney is one of the few stocks we cover with the potential to exceed Street expectations, in addition to fast growth at a reasonable valuation -- reaffirm our buy rating," Deutsche Bank's Doug Mitchelson said in his note to clients.
But Helfstein said he has conducted an "exhaustive" review of Disney's businesses, and he compiled a 24-page note on the Dow component.
While "Pirates" will help grow studio entertainment pro forma earnings by 27%, he contends that the company's ABC network faces difficult ratings comparisons, a lack of syndicated product and other losses. That translates to a 6% increase in earnings before taxes and interest.
Helfstein also points out that sales at Disney's cable networks isn't growing as fast as he previously forecast, with ESPN affiliate fees being deferred to the second half. And its theme park business should grow marginally as personal income levels are down for consumers.
Some cost-cutting measures may be in the works. On Wednesday, trade publication Variety said Disney plans to cut its film production by more than half and lay off an unspecified number of workers. The report said Disney would announce within 10 days its plans for cutting its annual slate of films to eight from 18.
Disney would not comment on the Variety report.
(END) Dow Jones Newswires 07-13-061136ET Copyright (c) 2006 Dow Jones & Company, Inc.
LOS ANGELES (Dow Jones) -- Walt Disney Co. was downgraded to sector underperformer on Thursday, on concerns of a lackluster 2007.
CIBC World Markets analyst Jason Helfstein wrote in a note to clients that the rest of 2006 is expected to be strong for the media and broadcasting giant, but his analysis of 2007 suggests slower growth. Helfstein's previous rating was sector performer.
The anticipated weakness is expected to come from fewer shows in syndication, difficult ratings comparisons at ABC, slower growth at theme parks and a full year of Pixar dilution, resulting in single-digit earnings per share growth, he said.
"Double-digit earnings per share growth may only be possible from cost cutting," Helfstein wrote in his note.
The rating took a large bite out of Disney (DIS) shares, which tumbled 3.6% to a session low of $28.84 at one point. Shares recovered slightly in recent trades and were down 3%.
The downgrade may be curious to some, given the glowing reports Disney received on Monday after its "Pirates of the Caribbean: Dead Man's Chest" set a new box-office record, raking in $135 million over the weekend. That prompted some analysts to write upbeat reports on how the film could boost company profits.
"We continue to believe Disney is one of the few stocks we cover with the potential to exceed Street expectations, in addition to fast growth at a reasonable valuation -- reaffirm our buy rating," Deutsche Bank's Doug Mitchelson said in his note to clients.
But Helfstein said he has conducted an "exhaustive" review of Disney's businesses, and he compiled a 24-page note on the Dow component.
While "Pirates" will help grow studio entertainment pro forma earnings by 27%, he contends that the company's ABC network faces difficult ratings comparisons, a lack of syndicated product and other losses. That translates to a 6% increase in earnings before taxes and interest.
Helfstein also points out that sales at Disney's cable networks isn't growing as fast as he previously forecast, with ESPN affiliate fees being deferred to the second half. And its theme park business should grow marginally as personal income levels are down for consumers.
Some cost-cutting measures may be in the works. On Wednesday, trade publication Variety said Disney plans to cut its film production by more than half and lay off an unspecified number of workers. The report said Disney would announce within 10 days its plans for cutting its annual slate of films to eight from 18.
Disney would not comment on the Variety report.
(END) Dow Jones Newswires 07-13-061136ET Copyright (c) 2006 Dow Jones & Company, Inc.
