UPDATED with closing stock price: Disney shares closed down more than 13% at $86.75 as investors chastised the company for a disappointing quarterly earnings report and weak revenue forecast.
The one-day drop was the biggest for Disney shares since the start of Covid in the US in March 2020, when it fell 13%. Shares are down more than 43% year to date, compared with a less than 10% decline for the Dow Jones Industrial Average in 2022.
PREVIOUSLY: Disney shares fell more than 11% today, double their normal trading volume, as investors recalibrated their expectations in light of a shaky quarterly earnings report.
At $88.53, Disney shares were at their lowest point since 2014, after bears dismissed the company’s much lower-than-expected profit forecast, as well as Wall Street’s expectations for the fiscal fourth quarter. Disney’s streaming business has proven to be a bright spot (Disney+ added 12.1 million subscribers and reached 164.2 million globally), but profitability has weighed heavily on investors’ minds despite management’s efforts to reassure them. Traditional businesses like cable TV are under significant pressure from cord cutting.
In most of the research notes, analysts discussed earnings from the earnings report and conference calls with executives. Several of them lowered their share price targets for the company, although they kept their recommendations to investors largely steady and did not cut prices based on the latest numbers.
MoffettNathanson’s Michael Nathanson called the company’s high-single-digit earnings growth forecast for fiscal 2023, well below the Wall Street consensus of 25% and the 34% forecast “the biggest debate” in finance. “Rarely have we been so wrong in our Disney earnings forecasts,” the analyst wrote. “Given the company’s belief that Parks’ trends appear to be sustainable, it appears that the culprit for the massive earnings decline is much higher than expected DTC losses and significant declines in linear networks.” Nathanson, who maintained a “market perform” (neutral) rating on Disney shares, cut his 12-month price target by $30 to $100.
The winner for leanest title goes to the Guggenheim’s Michael Morris, whose Disney note says, “These Are Not the Results You’re Looking For,” in a nod to Obi-Wan Kenobi’s Jedi mind trick. He lowered his 12-month price target to $115 from $145, but still has a “buy” rating on Disney stock.
BofA Securities’ Jessica Reif Ehrlich acknowledged the quarter was “tough,” but she painted a brighter picture than many of her Street peers. He reiterated his “buy” rating on the stock, but lowered his 12-month price target to $115 from $127.
“The quarter and outlook were disappointing, but not as bad as the headline numbers might suggest,” he said in a note to clients. “We believe that theme park demand remains healthy and the operating income miss is largely due to demand adjustment against one-off products. In linear networks, Disney is experiencing many of the same headwinds that other industry participants face, but we believe their iconic brands and scale/growing DTC service position them well to navigate these headwinds and industry transitions better than their peers.
Morgan Stanley’s Ben Swinburne, expressing more optimism than Ehrlich, reaffirmed an “overweight” (buy) rating and set a $125 price target on Disney shares. It characterized the lower-than-expected revenue and profit guidance for fiscal 2023 as “primarily a function of margin pressure at legacy TV networks, with lower F4Q Parks and Broadcast results also contributing.” In a note to clients, Swinburne wrote: “We value the Parks segment’s growth outlook, expect it to represent the majority of Disney’s EPS over time, and believe the stock undervalues Parks assets at current levels.”
Another notable bull was UBS’s John Hodulik, who carries a “buy” rating on the company’s stock. Although he lowered his price target to $122 from $135, he concluded, “While the macro environment poses challenges, we still see Disney as best positioned to transition into the streaming future.”
Against the backdrop of the stock market drama, Disney CEO Bob Chapek visited New York today. The executive, who has become increasingly visible in recent months as the worst of Covid eases, made another public appearance at the Paley Media Center’s International Council Summit in New York.