Formerly a rather bouncy stock in the entertainment sector, Walt Disney (DIS 0.77%) was feeling the effect of gravity on Tuesday. The Mouse's shares fell by 4% on the day, a far worse slide than the 0.8% of the slumping S&P 500 index. A price-target cut from an analyst, plus lingering concerns that the company might be an outside candidate to buy a huge tech asset, made for a gloomy trading day.
That analyst was Jonathan Kees of Daiwa Securities, who wasn't shy in reducing his target. The prognosticator lowered it dramatically -- to $151 per share from the previous $201. Despite the heavy chop, Kees is maintaining his buy recommendation on the stock.
In a new research note, the analyst wrote that the price-target reduction is being made "to reflect recent contractions in market multiples."
It wasn't only this rather unexpected change from a Disney bull that spooked investors. Last Friday, an article published in Puck News claimed that Electronic Arts management has "held talks with a number of different potential suitors." Among those apparent potential suitors is Disney and its longtime entertainment-industry rival Comcast.
Although several analysts have since weighed in on that speculation by opining that Disney wouldn't be a particularly good fit for the video game giant, a potential blockbuster deal is giving investors pause to think. Electronic Arts is doing better than many tech companies these days and has a market cap approaching $40 billion. Even a company of Disney's size would find it difficult to financially swallow Electronic Arts.
Disney is one of many formerly high-flying stocks that have been dinged lately by investors. Neither of these developments was too damaging for the company, but they're adding to the general bearishness on the stock. The company is still a powerhouse in various aspects of entertainment, however, so it's probably best for current shareholders to ride out this current wave.