Walt Disney Co has all the goodwill a stock could have but it has lost it within the last two trading sessions as a testament to the fickle nature of the market. The market considers ESPN as an important piece of the Disney puzzle going forward; hence, fears about how ESPN is faring has been a source of concern for traders and investors.
The market had high hopes for Disney before it reported earnings and the market was quick to punish the stock after it failed to live up to expectations. The market was more irked with the poor outlook that the firm guided for the year ahead. Walt Disney had a rough session after it missed the consensus estimates; the stock lost 9% yesterday. As at 11:52AM this morning, the stock has lost 4.23% to a trading price around $105.85.
ESPN by the numbers
ESPN is key to a large part Walt Disney Co revenue and anything that affects ESPN will surely affect the firm. ESPN’s operating income fell by 1.2% annually to $5.1B. ESPN generated about 46% of Disney’s total operating income. Disney has slashed ESPN’s operating earnings growth for 2016 from high-single digits to mid-single digits.
The Wall Street Journal reported last month that ESPN has lost 3.2M subs in a little over one year. WSJ also notes that the network’s reach in U.S. households has dropped by 7.2% since 2011. Bloomberg also reported that operating income at Disney Media networks, chief of which is ESPN has dropped by 2%.
Then there’s the news about the imminent cost-cutting moves that Disney has forced on ESPN. For instance, Disney wants ESPN to reduce its 2016 budget by $100M and it wants the 2017 budget to be reduced by a huge $250M.
Analysts weigh in on Disney
The predominant analyst outlook on Disney is negative. BMO Capital downgraded Walt Disney from Outperform to Market Perform with a price target of $110. In another news, analysts at Jefferies have downgraded Disney to Hold from Buy with a price target cut to $112 from $125.
On the bright side, a Piper Jaffray analyst James M. Marsh has maintained a Neutral rating on Walt Disney. More so, Bryan Kraft, an analyst at Deutsche Bank maintained a Hold rating and a price target of $120 on Walt Disney.
Despite the gloomy prospects of ESPN, some analysts are positive about how ESPN and Disney might fare going forward. Leading the bullish charge is Ivan Feinseth of Tigress Financial Partners. He thinks that Walt Disney Co is a great buy right now.
He says, “I think it’s a huge buying opportunity… I’m actually shocked it’s down, but I have often said you never buy a stock for what just happened, you buy a stock for what’s going to happen over the next few years.”