Disney Shares Tumble 4% on Revised Forecasts
Walt Disney Co.’s stock fell 4% on Thursday as concern about higher costs for sports rights and its upcoming film slate led a Goldman, Sachs & Co. analyst to lower his fiscal 1998 and ’99 earnings estimates.
Analyst Richard Simon cut his 1998 estimate to $3.10 a share from $3.20 and the 1999 estimate to $3.65 from $3.80, though he still recommends buying Disney shares.
Simon, who declined to comment, blamed the cuts on expected losses from the $9.2-billion National Football League television contract won by ABC and ESPN, a lack of big movies in the fiscal third quarter, and Disney’s dependence in the fourth quarter on the films “Armageddon,” which stars Bruce Willis, and “Mulan.”
“People are nervous about the stock because its had a very good run,” said Jessica Reif Cohen, an analyst at Merrill Lynch & Co., who has an “accumulate” rating on Disney. “It’s a good long-term holding but is one of the more expensive stocks in the [entertainment] group.”
Disney’s shares fell $5, or 4%, to close at $119.19 on the New York Stock Exchange on volume nearly twice the three-month daily average of 1.61 million. Earlier, shares dipped as low as $118.94.
Before Thursday’s decline, Disney’s shares had gained 6% since April 21, as it reported 14% profit growth for its fiscal second quarter, opened Animal Kingdom and announced a three-for-one stock split.
While cutting the earnings estimate, Simon kept Disney on Goldman’s list of recommended stocks.
Simon carries some clout with investors. In a 1997 survey by Institutional Investor magazine, Simon ranked second among entertainment analysts behind Reif Cohen.
Simon also raised concern over a new Florida theme park Seagram Co.’s Universal plans to open next year. That will bring increased competition for Disney’s theme park business there, including the recently opened Animal Kingdom.
Still, other analysts who follow Disney, including Merrill’s Reif Cohen, David Londoner at Schroder & Co., Laura Martin at Credit Suisse First Boston, and Christopher Dixon at PaineWebber said they had no immediate plans to lower their estimates.
“It’s a little premature to do anything before the summer movie season,” Dixon said, adding his 1998 estimate remains at $3.17 a share.
Disney plans to release “Mulan,” an animated film, in June and “Armageddon” in July.
The Burbank-based company is expected to earn $3.17 a share this year, according to the average estimate of 31 analysts surveyed by IBES International Inc.
In March, Simon and other analysts lowered their estimate for Disney’s fiscal second quarter because of lackluster films and lower ratings at ABC. The cuts came after Disney warned analysts that their forecasts were too optimistic.
Simon cut his 1998 earnings forecast for Disney’s creative content division, which includes Disney’s film studios such as Miramax, to $1.91 billion from $2 billion, calling his earlier estimate “overly optimistic.” He also cut his 1999 estimate to about $2.28 billion from $2.37 billion.
