Analysts Are Latecomers to Disney Swoon

If Walt Disney Co. were to make a movie about sheep, it might want to base it on the herd of analysts running away from its stock.

Disney shares fell 4.8% on Monday after the company warned late Friday that its fiscal fourth-quarter earnings will fall short of Wall Street expectations because of reduced demand for consumer products in Asia and weakness in its film business.

This could be a classic case of the smart money--or at least the smart short-term money--being ahead of the game. Investors have been dumping the stock all summer, but it wasn’t until Monday that a throng of at least eight analysts downgraded their ratings.

Shares of the entertainment giant fell $1.25 to $24.56 in heavy trading Monday after touching a 52-week low of $23.88. The stock is now off about 43% from its high.

Burbank-based Disney is struggling with economic trouble in Asia that’s taking a toll on its consumer-products division, as well as with weaker demand for its home videos overseas and rising costs for its films and ABC television network.

Disney’s warning came as no surprise to Cruttenden Roth Inc. analyst Jeffrey Logsdon, who slashed his earnings forecast Sept. 3--eight days before the company’s announcement.

“There was a guy who was clearly out in front, who had sniffed this thing out and led the pack,” said Charles Hill, director of research at First Call Corp., which tracks analysts’ earnings forecasts.

Analysts have been reluctant to cut their earnings estimates for U.S. multinational companies, even though the slowdown in Asia already has hurt profits for commodity producers and technology companies, Hill said.

“It was only a matter of time until the slowing in Japan, in particular, and other parts of Asia and elsewhere would lead to a slowing in earnings growth for some of the major U.S. multinationals,” Hill said.

Logsdon said he determined by “doing the research we do every single day” that Disney wasn’t going to meet expectations. He cut his forecast for this quarter’s earnings to 16 cents a share from 22 cents, which also was the First Call consensus at the time.

When Disney said Friday that its earnings would be 15 cents to 16 cents a share, the consensus stood at 21 cents.

Several other analysts get an honorable mention for cutting their estimates on Thursday, the day before Disney’s announcement, Hill said. But none of those analysts cut his or her estimate below 18 cents a share.

The analysts who cut their estimates Thursday included Goldman, Sachs & Co.’s Richard Simon, Jessica Reif Cohen of Merrill Lynch & Co., and Schroder & Co. analyst David Londoner. Yet Disney’s announcement caught 15 others by surprise.

Analysts often cut their ratings or profit estimates too late to do any good.

One case in point is Case Corp., which warned Wednesday that its profit will drop 25% this year from 1997 levels.

Case earned $5.11 a diluted share last year; the consensus on Wall Street at the time Case made its announcement was for the company to earn $5.45.

Only on Thursday and Friday did analysts at Merrill Lynch, Legg Mason Wood Walker Inc. and Dresdner Kleinwort Benson cut their ratings on Case’s stock.

Meanwhile, the smart long-term money might be buying Disney right now.

The stock, which traded at a trailing price-to-earnings ratio of a lofty 43 at its early May peak, now sells for a P/E of 25--or about average for the Standard & Poor’s 500 blue-chip index.