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Yes, Walt Disney's "The Lone Ranger" Bombed. Big Deal.

You'd think that this should be an especially trying time at the Walt Disney (NYSE: DIS  ) .

The entertainment and media giant's ballyhooed summer popcorn movie The Lone Ranger was an opening-weekend box-office fiasco and represented a public embarrassment for the Magic Kingdom company. Its performance was so catastrophic that it has sparked comparisons with Disney's other major movie nightmare in recent memory, John Carter.

Starring Johnny Depp, The Lone Ranger opened with an anemic figure of about $49 million in the United States and Canada. Meanwhile, the animated film Despicable Me 2, from Comcast's Universal Pictures posted a remarkable result of $142 million. Adding to Disney's misery, the company spent an estimated $250 million to produce The Lone Ranger while Universal invested about $76 million on its animated feature. 

Putting further stress on Disney, one of its flagship franchises, ESPN, appears to be under pressure to continue to flourish with the debut next month of hard-charging rival Fox Sports 1.

Yet Disney's much-followed stock has not suffered. Wall Street has been able to look past the Chicken Little headlines because analysts see the big picture.

On Monday, Credit Suisse stressed that it was raising its target price to $74 from $73 for Disney. True, a single dollar doesn't seem like a big deal, but what matters here is the timing of the investment banking firm's move -- reassuring Disney investors that Credit Suisse strongly believes in the company, and its price target connotes a potential 14% upside from its price at the time. Credit Suisse noted:

With the majority of key affiliate deals and sports-rights deals locked up into the next decade, revenue and cost visibility remains high for ESPN. We project an 8% 5-yr CAGR [compound annual growth rate] for Cable EBIT [earnings before interest and taxes] with affiliate renewals balancing elevated cost growth in FY 14-15, followed by longer term margin expansion as costs normalize.

The Star Wars franchise should drive strong profit growth and mitigate risk at the Studio with fewer risky high budget films. Further, our analysis indicates more upside at Consumer Product than consensus est. Overall, we are raising our Lucas EBIT est by 40% and 61% in FY14 and FY15. Based on trends at other Asian parks and the large local market, we conservatively estimate Shanghai can debut w/7m visitors and $748m rev in FY16. Entry into the Chinese market should also create opportunities for other DIS businesses.

Nineteen equities analysts have placed a buy rating on Disney, and one says it is a strong buy, overshadowing the 11 analysts who say Disney is a "hold" for investors. Disney has an average investment rating of "buy" and an average target price of $68.19.

Disney has its share of skeptics, too, on Wall Street. On June 20, for example, Goldman Sachs downgraded Disney from a "buy" to a "neutral" rating while placing a $70 target price on the stock.

Disney next reports quarterly earnings on Aug. 6. On May 7, it posted earnings per share of $0.79, topping the Thomson Reuters consensus projection of $0.77 by two pennies. In addition, its revenue figure came in at $10.55 billion for the three-month period, against the forecast of $10.48 billion. During the same quarter a year ago, Disney had earnings of $0.58 a share. Its revenue jumped 9.6% compared with the same quarter in 2012.

Only a strong company could shrug off the problematic Lone Ranger opening at the box office. Disney is now expected to take a writedown of more than $100 million on the movie in the fiscal fourth quarter. 

However, cooler heads have prevailed here. As The Fool's Tim Beyers pointed out on July 9, "Don't pity Walt Disney. For as badly as The Lone Ranger is performing at the box office, the company's Buena Vista Pictures is earning as much as ever."

As the astute Beyers notes, after amassing $800 million in U.S. box office sales only once in this century -- in 2010 -- the company has accomplished the feat both in 2012 and this year. The reason: Marvel's The Avengers and Iron Man 3. These reaped more than $1 billion each in worldwide box office results.

"Impressive may be too timid a word for how well Buena Vista is doing right now," Beyers wrote.

The moral of the story is that people who obsess over box-office failures don't often look at the big picture. No doubt, Disney has egg on its face right now because of the expectations surrounding The Lone Ranger.

But the key to a well-run company such as Walt Disney is that it has enough strength to overcome one major disappointment.

Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On July 11, 2013, at 9:16 PM, LiCoco wrote:

    I think it IS a big deal and indicative of the sad, sad state of the American film industry. Who'dathunk that TV actually would have better, high quality entertainment these days? So far, this summer's movies have been a zero......but, I am looking forward to "The way way back.".....we'll see.

  • Report this Comment On July 11, 2013, at 9:20 PM, yummy888 wrote:

    This is KARMA - pure and simple. If a person can be held accountable so can an entity. We'll see a huge decline for DIS stock over the next year where it will floor at $45.20 and "bottom out". They will need to take it like any other and stop putting out demonic material and marketing it to our kids. Children don't need to see wicked and scary figures like Maleficent or dead crows which symbolize "dark" material their minds and souls are not ready for. Parents are becoming sharper as well because they are the ones nurturing the children back to sleep after "nightmares" experienced from watching these "adult" oriented themes. We'll see Disney's audience changed from children to "those who do like watching such projects on cellophane digital" --

    It has not been a secret of Disney's long time involvement with supporting "child sex rings" and pornography to the "elite" all the while "whitewashing" grave decisions to "entertain" in other facets of Underland as they "tongue in cheek" put in their rendition.


    "The subsequent media coverage of Salva's criminal history, and speculation as to why Disney would hire a convicted sex offender, ensured that Salva would not make another film until 1999's Rites of Passage."

    Don't believe ask actor Kurt Russell why his name was the last thing uttered from "Walt Disney" and how within days - Buena Vista "greenlit" his western film (the greatest thus far) "Tombstone". People have forgotten Kurt worked closely with Walt as a "childhood actor". Read the stories from Corey Feldman

    DISNEY's KARMA is what you are purchasing every time you buy in to their stock. You are supporting what they "believe" in "doing" to others.

    THINK ABOUT IT - remember Britney Spears and Amanda Bynes...

  • Report this Comment On July 12, 2013, at 12:11 AM, DrStinko wrote:

    The American movie going public (not kids...) are waking up to the fact that spending 75usd for a family of four eats it if the movie blows...

  • Report this Comment On July 12, 2013, at 8:39 AM, DonkeyJunk wrote:

    No points of view are quite so entertaining as the fanatical points of view. Thanks, comments area.

  • Report this Comment On July 27, 2013, at 1:28 AM, chinamikey wrote:

    Disney has a number of so called bombs in its stable (Remember Black Hole?) and it never affected its bottom line. Disney is like Microsoft, it isn't going anywhere soon. When you have roots that run as deep as Disney and has its fingers in various successful pies thanks in large part to Michael Eisner in the *1980s, its diversity keeps it consistently stable.

    *Under Michael Eisner's guidance, Disney added 7 theme parks, a cruise ship line, a successful stage play division and 10 domestic cable channels, and increased its revenue from $1.5 billion (1984) to $30.75 billion (2004). The company's stock price increased 1,646 percent.


  • Report this Comment On July 27, 2013, at 1:37 AM, chinamikey wrote:

    *addendum I should add Michael Eisner's steerage of the Disney empire was more aptly most beneficial from about 1988 to early 1990s, not the 1980s as earlier stated.

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