Janney Capital Downgrades Walt Disney (DIS) to Neutral; Ad Deceleration, Reinvestment of Park Profits

November 9, 2012 7:23 AM EST
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Price: $107.28 -0.81%

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Janney Capital downgraded Walt Disney (NYSE: DIS) from Buy to Neutral with a price target of $55 following Q3 results, citing ad deceleration and reinvestments that are clouding growth.

"We believe the recent deceleration in advertising fundamentals (and ratings) combined with the reinvestment of Park profits will depress near term earnings growth and DIS's premium valuation," analyst Tony Wible states.

The analyst expects the stock to be range bound until the ad market recovers or DIS gets closer to recapturing returns on recent investments.

On the ad market uncertainty, Wible notes that while ESPN is facing an easy comparable due to last year's NBA lockout, its ad business is pacing down. "This is even more troubling given that DIS should be seeing the early benefits from the price increases in the new upfront," hte notes. While ABC and ABC Family are seeing better growth, ratings declines of 7%-8% at ABC are not encouraging as they could trigger make goods. Also, hurricane Sandy may also further impair ratings.

On Parks, the analyst notes investors were hoping for an acceleration of Park earnings as new hotels, attractions, and cruise capacity was added over the past year. However, returns are being deferred to 2014 as a new round of investment for Disney World and Shanghai will offset the $500 million in incremental profits from the new capacity. "Essentially, the Parks business will not be able to buffer any slowdown from ad sales," he states.

For an analyst ratings summary and ratings history on Walt Disney click here. For more ratings news on Walt Disney click here.

Shares of Walt Disney closed at $50.04 yesterday.

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