Walt Disney Co. (NYSE:DIS) can’t seem to do anything right in the eyes of investors.
Take the announcement on Thursday of a $15 billion deal between Disney’s ESPN cable sports network and the NFL. Disney’s stock, which has fallen more than 15% this year, barely budged on the news. Wall Street also wasn’t moved by last month’s better-than-expected fiscal third-quarter results and CEO Bob Iger’s assurances that “we are optimistic about our creative pipeline across our businesses and confident our current long-term strategy will create shareholder value.”
In fact, four Wall Street brokerages have downgraded the Burbank, Calif.-based company since June. Perhaps investors are worried that a downturn in consumer sentiment will affect Disney’s theme parks and advertising businesses, though that hasn’t been a serious problem yet.
During the last quarter, Disney’s Parks and Resorts business posted a 12% gain in revenue and a 9% increase in operating income, which is impressive given the increased capital expenditures in business. The company’s theme parks, including Walt Disney World Resort in Florida, will continue to attract throngs of foreign visitors lured by the weak dollar. Iger told investors, “We haven’t seen any change in the pace of activity in our Parks and Resorts.” Of course, that could easily change if the economy continues to deteriorate.
As for the advertising slowdown, Disney has not escaped it, but it hasn’t been a huge problem, either. Advertising revenue at ESPN was flat in the second quarter because the cable network lacked big audience draws such as the FIFA World Cup and Game 7 of the NBA Finals. That’s hardly a shock. Though ratings were off, that will change with this week’s start of the NFL season. Professional football is a consistent ratings winner on both cable and broadcast television. Meanwhile, advertising revenue at the ABC-TV network gained during the quarter. It remains to be seen whether marketers will stick around after its hit show “Desperate Housewives” comes to an end.
Disney lost its luster earlier this year after posting disappointing fiscal second-quarter results. Analysts described it as a “rare miss,” and the company has not gotten a break from investors since then. Shares of the house that Mickey built are underperforming every other media conglomerate.
Many of the catalysts that were supposed to boost Disney’s shares have not done so. “Mars Needs Moms” bombed at the box office. “Cars 2” was a critical disappointment; as of Sept. 7, it grossed more than $187 million domestically, according to Box Office Mojo. At the same point in its 2006 release, “Cars” had grossed more than $243 million. Disney’s Buena Vista studios ranked fifth in terms of box office market share, trailing Viacom’s (NYSE:VIA) Paramount, Time Warner’s (NYSE:TWX) Warner Bros., Universal Studios and Sony’s (NYSE:SNE) Sony/Columbia studio. The movie business is struggling this year as attendance sunk to its lowest level since 1997.
Disney’s shares are cheap. Its price-to-earnings ratio is 13.8, below the S&P 500’s 15.68. Even so, the stock might stay stuck in its current range until Disney again wows Wall Street with a mega-hit or if an improved economy spurs more people to visit the company’s resorts. Investors will have to wish upon a star until that happens. In the meantime, it’s best to steer clear of the stock.
Jonathan Berr recently sold his Disney shares. He owns no shares of other companies listed here. Follow him on Twitter @jdberr.
