Disney Falls (DIS) on Guggenheim Decommissioning

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Shares of The Walt Disney Company (DIS) fell nearly 3% after analysts at investment firm Guggenheim Partners downgraded the stock amid concerns about the company’s future earnings growth. Disney, which reports earnings on Feb. 9, closed trading at $155.44 on Jan. 13. As of this writing, the stock is changing hands for $151.13.

Key points to remember

  • Disney stock is down as it was downgraded to Neutral by investment firm Guggenheim Partners.
  • The company cited the threat of new COVID variants disrupting operations and the entertainment giant’s increased content spending as reasons for its downgrade.
  • Of 17 analysts covering Disney, 14 still rated it as a buy for 2022.

Why did Guggenheim demote Disney?

Guggenheim analysts downgraded Disney stock to Neutral from their previous Buy rating. They also cut the company’s price target on Disney shares to $165 from $205 due to “broader trading pressure.” Elements of that pressure include higher wages for workers and the threat of future COVID outbreaks affecting attendance at its Parks division.

Guggenheim also cited the entertainment giant’s increased spending on content as the reason for his demotion. In an earlier filing, Disney said it plans to increase content spending by $8 billion, to $33 billion, in 2022.

Guggenheim said Disney’s current trading price, about 17 times its expected 2023 earnings, values ​​the company near its fair estimate. “While we believe the worst of the overall bear case story is understood (digital growth challenges, fleet trend volatility and cost inflation), we still view stocks as close to fair value,” wrote Guggenheim analyst Michael Morris in the note.

Is Disney still a buy?

After crashing to $96.60 at the start of the pandemic, Disney posted 18% growth in its stock price in 2020. The following year was a tough one, however. Disney Plus subscriber growth, which had fueled nearly all of its gains during the pandemic shutdown, has slowed. New strains of COVID have interfered with the company’s plans to fully reopen other sources of business revenue, including its theme parks and theaters. As a result, the stock fell 14.5% and became the Dow Jones Industrial Average’s worst performer of 2021.

Despite the difficult circumstances, Disney could still emerge victorious this year. Of the 17 analysts covering the company, 14 have a “Buy” rating on the stock. Earlier this month, Wells Fargo senior analyst Steven Cahall told TBEN that 2021 was a “rare but clear strategic misstep” for Disney. Cahall, who selected Disney as his Top Large Cap Pick of 2022, said Disney doesn’t have the level of content that its peers in the streaming business had and showed in 2021.

With its increased content spending in 2022, the company should close this gap. “It’s not rocket science. You post a lot of content and people will sign up to watch it,” he said, adding that more content gives Disney “more shootouts.” While operations in the company’s Parks division have been crippled due to new variants of COVID, Cahall expects a rebound this year. He has a price target of $196 for Disney shares.

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