Despite Setbacks, Disney Looks Good, Analysts Say

Despite a string of recent setbacks at Walt Disney Co.--struggles at its new California Adventure theme park, troubles at its Internet venture and the less-than-stellar performance for its epic summer movie “Pearl Harbor”--the Mouse House continues to get favorable grades from most Wall Street analysts.

Many of the company’s woes, they say, are cyclical and that Disney should fare well over the long term. They cite the continued strength of the Disney brand, the company’s prospects for overseas expansion and savings from a corporate-wide belt-tightening that will eliminate 4,000 jobs by the end of next month.

“The long-term prospect for Disney remains very positive,” said David Leibowitz, managing director of Burnham Securities. “Disney is the brand par excellence, and it is a franchise that has far from reached saturation or enjoyed the potential profitability that is out there.”

Indeed, Wednesday’s double dose of sobering news--deep discounts at its new Anaheim theme park and the resignation of its movie studio chief--did little to dampen investors’ enthusiasm for Disney stock. It climbed 85 cents to close at $30.10 in New York Stock Exchange trading Thursday.

“I do think our company is undervalued, and I think at the end of the day that will prove to be true,” Disney Chairman Michael Eisner said Thursday.

Analysts’ ratings and the objectivity of their research have come under congressional scrutiny in recent weeks following the collapse of many heavily promoted technology stocks over the last year. The House conducted hearings this month examining the issue of conflicts of interest involving analysts and their stock recommendations.

Of 27 analysts surveyed by Bloomberg News, 17 have a “buy” or “strong buy” on Disney shares, nine have a “hold,” and one has no rating.

As a group, analysts generally have stood by Disney and Eisner even though the company’s stock has been uneven in recent years.

Disney stock has held up better than the average blue chip over the last two years. But longer term, it has fared poorly.

From Dec. 31, 1997, through the end of May, the Standard & Poor’s 500 index was up 29%. In the same period, Disney’s share price was down 4%.

Only one prominent media analyst, Jessica Reif Cohen of Merrill Lynch, has lowered her earnings estimate for Disney. Cohen, who has a “long-term buy” on the stock, predicts Disney’s third-quarter earnings will drop 10% to 21 cents a share.

“We continue to be concerned by the risk to Disney’s earnings from a slowing economy and the continued weakness in the current advertising market,” she wrote in a report Wednesday on the company.

But like other analysts, Cohen predicts Disney’s belt-tightening and new theme park openings in Tokyo and Paris will improve the company’s prospects next year.

Disney, which does not give specific financial projections, has not revised its outlook for the year. The analysts surveyed by Bloomberg estimate that the company will earn an 80-cents-a-share profit in its fiscal year ending in September.

“We’re expecting single-digit earnings growth, possibly double-digit, depending on the performance of the studio,” Chief Financial Officer Tom Staggs said.

On Wednesday, Disney said Walt Disney Studios Chairman Peter Schneider is resigning to start a Broadway production company. Schneider, a 16-year Disney veteran, was the latest in a string of high-level executives who have left Disney in recent years.

The same day, in a move to boost attendance at California Adventure, Disney took the unusual step of offering free admission all summer for Southern California children accompanied by an adult.

Sobani Warner, media analyst with New York investment company Williams Capital, said she was surprised that Disney would offer such a promotion at California Adventure during the busy summer season. But slowing theme park attendance is more due to the economy than any inherent weakness in Disney, Warner said.

“None of these developments really affect my long-term view of the franchise,” said Warner, who has a “buy” recommendation on the stock. “When you have a challenging market situation, there’s a flight to quality.”

Disney has been grappling with nagging problems in its Internet and consumer products divisions. The company scaled down its Go.com portal this year and is revamping the Disney stores and striking new deals with retailers such as Kmart.

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Times staff writer Sallie Hofmeister contributed to this report.