Brocker.Org: Disney downgraded on concern more ESPN subscriber losses are ahead


Macquarie Capital lowered its rating for Disney to neutral from outperform because it predicts the company’s earnings will miss Wall Street expectations next year due to ESPN subscriber losses.

“We still think Disney is one of the very best companies in media but we are setting the pause button as the industry in general, and ESPN in particular, continue to digest the implications of changing viewing habits,” analyst Tim Nollen wrote in a note to clients Wednesday. “Disney’s cable net exposure and outsized sub declines at ESPN have again become a focal point in investors’ minds. Advertising was also soft in calendar Q1 (Disney’s F2Q). We don’t see much near-term scope for either to pick up.”

The analyst reduced his 12-month price target for Disney to $105 from $125, representing 3 percent downside from Tuesday’s close.

Nollen cited how the ESPN subscriber base declined by 3 percent in Disney’s fiscal second quarter, which was greater than the 1 percent average subscribers loss of the major cable and satellite TV companies in the same time period.

“Disney has some distribution renewals coming up in the next 18 months, presenting an opportunity to gain some pricing. But as subs continue to fall, there could also be some loss of bargaining leverage vs carriage fee negotiations in the past,” he wrote.

As a result, the analyst lowered his fiscal 2018 Disney earnings per share estimate to $6.70 from $6.76 compared to the Wall Street consensus of $6.77.

— CNBC’s Michael Bloom contributed to this story.