This hasn't been a good week for Walt Disney (DIS 0.68%) investors. The rain started to trickle down on Monday, when Evercore ISI (EVR +2.99%) slashed its price target from $130 to $110. The firm is lowering its near-term estimates, concerned about near-term weakness in linear-TV advertising revenue.
With production strikes finding media networks scrambling for fall season content, it's easy to see why marketers might be holding back on that front. However, at least Evercore stuck to its bullish outperform rating. The new price goal represents 26% of upside from where Disney shares were at the end of last week.
The light raindrops turned into a deluge on Tuesday after Hamilton Faber at Atlantic Equities downgraded the House of Mouse from neutral to underweight. He is also ringing a warning bell when it comes to linear-TV advertising, a pressure point that's trimming his operating income forecast by $1 billion for the media giant come fiscal 2026.
Faber's price target is sinking from $113 to $76, 11% lower than where the stock closed on Tuesday after kicking off this otherwise buoyant trading week with back-to-back days of declines.
NYSE: DIS
Key Data Points
Steamboat Silly
The general market has been rallying in recent months, but Disney stock has fallen in 9 of the past 12 weeks. The shares are moving lower for the fourth week in a row. In a year of rising equity prices, Disney is the 12th largest company by market cap to have declined so far in 2023. There are 59 stateside-listed companies with greater market caps.
It's bad chart art: the second time in as many years that Disney stock falls after extending the contract of its current CEO.
One can argue that this means that Disney shares have only gotten cheaper, approaching the three-year low they hit seven months ago. Unfortunately, it's not just the stock price that's sliding. Analysts who were banking on Disney to earn $4.11 a share this fiscal year and $5.44 a share in fiscal 2024 just three months ago are now modeling $3.38 and $4.56, respectively.
In Disney's defense, it's not the only content creator that's imploding in the current operating climate. Analyst profit targets for the Mickey Mouse company have eroded by 16% to 17% over the past three months, but the plunge in the pros' projections has been even deeper for rivals Paramount Global (PARA +0.00%) and Warner Bros. Discovery (WBD 0.04%) over the same three months.
Strike-related work stoppages might seem like the obvious scapegoat, but didn't Netflix (NFLX 0.91%) just boost its free-cash-flow outlook for all of 2023 to $5 billion from $3.5 billion, primarily because of the money it's saving in the near term on content creation? Isn't CEO Bob Iger knee-deep into a two-year plan to shave $5.5 billion in annual expenses?
Image source: Disney.
Raiders of the lost art
Fixing Disney was never going to be easy, which explains why the board doubled down by extending Iger's contract by another two years. We'll see how Disney is holding up financially, now that Iger has some more wiggle room with his pruning shears, when it reports its fiscal third-quarter results in two weeks. But it's not comforting to see a downgrade for an already depressed stock so close to that earnings call.
It's easy to understand why Disney stock has fallen out of favor. This will be the fourth year in a row that the studio doesn't put out the highest grossing movie after cornering the top six spots domestically in 2019.
The theme parks that have been a refreshingly steady performer in recent years are experiencing an industrywide slowdown during the early part of the peak summer travel season.
And Disney+ has gone from being a silver bullet that sent the stock to an all-time high in early 2021 to a dagger with stalled subscriber growth in a climate where its heavy losses are no longer fashionably acceptable on Wall Street.
I still believe in Disney during this ugly downpour. I still M-I-C the potential at a time when most investors are asking K-E-Y would you buy into a laggard when the leaders are sprinting in plain sight. Iconic theatrical franchises don't just rust to dust without a way back from the pulverization. Disney's money-slurping segments should look materially different by the end of fiscal 2024, and it may already be on the turnaround trail when the bellwether of media stocks reports fresh financials on Aug. 9.
Disney has been doubted before, and it has always bounced back.
