NEW YORK: Pali Capital analyst Rich Greenfield raised his target sell price on Disney, but retained his “sell” rating nonetheless. The new 12-month price target is $17, revised from $12.50.
“While we believe Disney’s underlying asset mix has greater secular appeal than the majority of its media industry peers along with a management team that can actually articulate a vision for the company’s collective asset mix, we continue to believe expectations for 2010 are far too aggressive,” Greenfield wrote.
Pali raised its 2009 earnings per share estimate on Disney (NYSE: DIS) to $1.69 from $1.63; and 2010 from $1.48 to $1.57. Both estimates remain below consensus, which has fallen since March, when Pali issued its “sell.” Consensus puts 2009 EPS at $1.70, down from $1.79; and 2010’s at $1.90, down from $1.99.
“Despite the aforementioned decline in consensus expectations over the past several months, investors have viewed 2009 as the trough for Disney with the expectation that the global economy improves in 2010, and in turn, Disney’s growth prospects,” he wrote. “We were also negatively biased toward Disney’s upcoming film slate, which proved accurate earlier in the year. However the recent success of Pixar’s ‘Up,’ well ahead of our forecasts, has renewed investor confidence in Disney’s creative capabilities, especially with ‘Toy Story 3’ due out in FY2010 and ‘Cars 2’ in FY2011.”
Greenfield is sticking with “sell,” despite Disney having outperformed the S&P 500 in the past four months.
“We continue to believe the next 12 to 18 months will be substantially more difficult for Disney than investors are currently anticipating,” he said. “We are estimating a high-single digit earnings decline for Disney in FY2010, whereas consensus is still expecting solid growth.
“The biggest areas of deviation between our estimates and consensus lie in theme parks… and broadcasting, where we expect another year of substantial profit reductions as local TV revenues continue to fall and network ad rates fall at an increasing rate.”
On the upside, Pali’s target sell price was raised on prospects for the studio “and a substantial increase in peer group/market multiples.” The revised target price of $17 is based on a fiscal 2010 estimated price-to-earnings ratio of about 11x, and 23 percent decline from the current trading price of $22.11 (2:44 p.m. Eastern).
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