Jefferies Downgrades Disney; Street Neutral On Stock Ahead Of 'Star Wars'

In a report published Wednesday, Jefferies analyst John Janedis downgraded the rating on Walt Disney Co DIS from Buy to Hold, while reducing the price target from $125 to $112.

Walt Disney’s stock valuation “no longer supports our Buy” on account of the reduced earnings expectations due to the revised outlook for the cable segment’s growth, Janedis said.

In the report Jefferies noted, “DIS reduced its F13-16E cable EBIT guide to +MSD vs. its prior +HSD (given at co's investor day in Apr. '14) primarily on lower subscriber growth expectations,” while adding that the reduced subscriber growth was an ongoing industry trend.

Janedis mentioned that the expected contribution from Star Wars across Walt Disney had been a big part of the bull thesis. However, the company’s management had cautioned the Street to not “get ahead of [them] too much in terms of estimates.” Walt Disney also expects additional forex headwinds of about $500 million to impact its F16 EBIT.

The EPS estimates for F4Q15, F16 and F17 have been reduced from $1.16 to $1.14, from $5.81 to $5.56 and from $6.36 to $6.00, respectively.

Delayed Forex Impact, ESPN Sub Losses Lower Outlook, Says Morgan Stanley

In another report, Morgan Stanley analyst Benjamin Swinburne maintained an Equal-Weight rating on Walt Disney, after the company lowered the CAGR outlook for its cable network segment from high single-digit percentage to mid single-digit percentage for FY14-FY16.

“Incremental subscriber erosion from cord-cutting/shaving and FX headwinds since ESPN's Investor Day in April 2014 have led to this downward revision,” Swinburne wrote, while adding that ESPN was expected to incur increased rights fees in FY17 for its new NBA contract.

Although Walt Disney actively hedges its currency exposure, the impact of new hedges replacing existing hedges at current rates was ultimately felt by the business. Swinburne added, “Disney called out a $500M impact to OI in FY16, essentially the delayed impact of the USD rally over the last year. The impact will be, in order of magnitude, at the Media Networks (Disney Channel and ESPN), Consumer Products, and Film segments.”

Piper Jaffray, Deutsche Bank Maintain Ratings on DIS

Piper Jaffray analyst James M. Marsh maintained a Neutral rating on Walt Disney, saying the company’s current stock valuation largely reflected the current outlook.

Marsh noted that the company reported in-line results but reduced its cable segment income growth guidance due to the negative impact of loss of subscribers and the strengthening of the US dollar. The EPS estimate for FY15 has been raised from $5.08 to $5.18 to reflect the company’s quarterly beat.

In a separate report, Deutsche Bank analyst Bryan Kraft maintained a Hold rating and a price target of $120 on Walt Disney.