Walt Disney Co stock was down by more than 7 percent ahead of market open on Wednesday morning after the firm disappointed Wall Street with its outlook for the year ahead. Dan Salmon of BMO says that “Disney possesses the best set of assets in media,” but he doesn’t think the firm will Outperform over the next year.
The analyst was one of the first to release a report on the Disney earnings. Wall Street research houses, like traders in the after hours market, were negative on Disney after the firm showed earnings per share of $1.45, ahead of the mean forecast of $1.42. Sales came in at $13.1B, below Wall Street’s estimate of $13.32B.
Disney can’t make the most of its assets
Mr. Salmon of BMO Capital was clear that Disney has a lot of opportunities in the long term, but “a more cautious tone” and forecast for the year ahead brought him to downgrade the firm’s stock. Mr. Salmon now has a Market Perform rating on shares in Walt Disney Co .
More than one red flag was noted in the BMO report. A Walt Disney Co direct ESPN streaming product is not likely on the way any time soon says Salmon. At the same time, the building of a new theme park, likely focused on Star Wars, is going to cost a lot in the short term before being able to return cash to Walt Disney Co coffers.
Salmon also pointed to the promise of a $6-$8B buyback as evidence that Disney leaders may no longer be confident in the firm’s growth in future months.
Those comments were backed up by John Janedis of Jeffries. Mr. Janedis said that Walt Disney Co no longer supported his $125 price target. He downgraded the firm’s stock from Buy to Hold and put a new price target of $112 on shares.
The premium the older price target put on the shares can no longer hold, says Janedis, because of the firm’s lower earnings forecast.
Keeping optimistic about Walt Disney Co
It wasn’t all doom and gloom on Wall Street after the Disney earnings numbers. Guggenheim’s Michael Morris dropped his price target on Walt Disney Co from $127 to $120, but kept his Buy rating on the firm.
Mr. Morris was able to see the light side of the earnings, including the coming release of Star Wars: The Force Unleashed, and strong demand in the Walt Disney Parks and Resorts business.
In the year ahead and beyond Disney will continue to use “the best set of assets in media” to expand, but the firm may not be able to grow as fast as Wall Street wants.
At time of writing shares in the firm are selling for $113.20, down 7.01 percent in after-market trading. If the first group of Wall Street reports on the firm’s earnings are a good guide, the market may support that sell-off once it opens for the day.