NEW YORK: Pali Capital lowered its 2Q forecast for Disney this morning, predicting a 32 percent decline in operating earnings compared to the previous estimate of 22 percent. Pali’s Rich Greenfield said the decrease would be driven by the broadcasting division, “tough comp vs. writers strike last year,” as well as studio entertainment and theme parks. Earnings per share for fiscal 2Q are pegged at 39 cents rather than 46 cents. Full-year operating income is expected to decline by $100 million
For 2010, Pali is maintaining its “well-below consensus” fiscal 2010 EPS estimate of $1.45, down 10 percent year-over-year.
“Our well-below consensus 2010 estimates remain premised on the expectation that Disney’s theme parks will continue to struggle as Disney has pulled forward a significant amount of attendance during 2Q,” due in part to aggressive room discounts. Foreign currency shifts are expected to hurt attendance going forward.
“We also believe Disney’s broadcasting business will continue to shrink in 2010, despite a dramatic decline in 2009,” Pali’s note said.
The firm maintained a rating of “sell” on Disney (NYSE: DIS) and a target share price of $12.50 based on an estimated fiscal 2010 price-to-earnings ratio of 8.6x; 15x adjusted free cash flow; and 4.4x enterprise value-to-EBITDA ratio. DIS is currently selling at an estimated 2010 14x P/E; 25.5x adjusted FCF; and 7.2x EV/EBITDA.
“Our forecast reflects our belief that the majority of revenue declines--particularly in theme parks and broadcasting--will flow through to the operating-income level. If Disney is able to offset the majority of revenue declines through cost cutting, our operating income forecast may prove too conservative,” the Pali note stated.
Pali analysts don’t expect Disney to repurchase a “meaningful percentage” of its outstanding shares in fiscal 2009 or 2010, but were it to do so, could support the current stock price of around $20. -- Deborah D. McAdams
