Entertainment giant Walt Disney Co.
The Disney Analyst: KeyBanc Capital Markets analyst Brandon Nispel downgraded the stock from Overweight to Sector Weight.
The Disney Thesis: Nispel in a note outlined five reasons for his move to the sidelines on the Disney stock.
Disney's domestic Parks expectation appears to be high, the analyst said, adding that attendance data for April and May was poor. Disneyland's growth due to its 100th-anniversary celebration was more than offset by contraction at Walt Disney World Resort, Orlando, Florida, he said.
"We worry the 'tough comps' are not properly reflected in consensus," Nispel said. The consensus estimates call for Domestic Parks and Hotels revenue growth of about 6% for the fiscal third quarter and 8% for the fiscal fourth quarter, he noted. KeyBanc, however, expects a deceleration of growth, he said.
The analyst also expressed doubts about attendance and per-cap spending trends staying positive.
Disney's new labor contract in Florida and the impact of the accelerated depreciation of the Starcruiser could pressure the margin, the analyst said.
Nispel also noted that Disney's direct-to-consumer subscriber growth stalled and the company has failed to differentiate its DTC churn relative to peers. The DTC business comprises its Disney+ and Hulu streaming services. The analyst expects Disney+ U.S. and Hulu to report net losses on a combined basis in the third quarter.
KeyBanc noted that ESPN's move to streaming is materially harder than initially thought, as the firm's survey showed a low willingness to pay.
Structural changes in the content have resulted in the inability of the Disney content sales segment business to make money for the foreseeable future, the firm said.
Additionally, KeyBanc said it worries the "2024 financial setup feels a lot like 2023."
"We prefer to step aside, acknowledging meaningful uncertainty, and wait for further catalysts, as buying the dip has been a losing trade," Nispel said.
Price Action: In premarket trading on Thursday, Disney shares were down 0.79% at $88.13, according to Benzinga Pro data.
