Disney shares to drop 19% this year on ESPN, movie risks, BMO says

Published Wed, Jan 18 201711:02 AM EST

BMO Capital lowered its rating for Disney to underperform from market perform, because it says the company's earnings will miss Wall Street expectations this year. "We believe the risk/reward skews negatively and continue to see more negative data points than positive ones for ESPN, which we believe will remain the dominant theme for the stock," analyst Daniel Salmon wrote in a note to clients Wednesday. "Moreover, we believe it is still too early to own the stock for the F2018 film slate. ... We see more risk than opportunity in estimates for the studio segment," he added. BMO's call is in direct contrast to Goldman Sachs' upgrade of Disney to buy on Tuesday, which was bullish on the company's upcoming films. Salmon reduced his Disney 12-month price target to $88 from $90, representing 19 percent downside from Tuesday's close. The analyst said last year Disney's shares often traded lower after the release of Nielsen monthly cable subscriber data, which showed weakness for ESPN and other Disney channels. Salmon said the stock could come under pressure once again when Nielsen's 2017 data starts to hit the Street. He cited an ill-advised large acquisition and succession plan for CEO Robert Iger as other possible downside risks for the company's stock. Salmon noted how Disney's average theatrical revenue per film surged to $282.5 million in 2016 from $211 million in 2015. "Disney's average theatrical revenue per film took a step function up in F2016," he wrote. "We expect the overall strength of the individual films to keep the average elevated over the next several years; however, we don't expect continued increases in F2017, F2018 or F2019 which we believe is what consensus is implying right now." The analyst lowered his 2017 Disney earnings per share estimate to $5.73 from $5.92 versus the Wall Street consensus of $5.92 due to lower profit prospects in its media networks, movie studio and consumer products businesses. — CNBC's Michael Bloom contributed to this story.

Disney World to close its theme park this weekend as Hurricane Irma closes in on Florida.

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BMO Capital lowered its rating for Disney to underperform from market perform, because it says the company's earnings will miss Wall Street expectations this year.

"We believe the risk/reward skews negatively and continue to see more negative data points than positive ones for ESPN, which we believe will remain the dominant theme for the stock," analyst Daniel Salmon wrote in a note to clients Wednesday.

"Moreover, we believe it is still too early to own the stock for the F2018 film slate. ... We see more risk than opportunity in estimates for the studio segment," he added.

BMO's call is in direct contrast to Goldman Sachs' upgrade of Disney to buy on Tuesday, which was bullish on the company's upcoming films.