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BTIG cuts Disney rating to 'sell'

"Stars Wars" may be a big hit at the box office, but BTIG is not impressed.

On Friday, the firm cut its rating on Disney to a "sell" due to guidance for upcoming years that is "far too high."

"It is important to note that we believe that if 'Star Wars Episode VII' does not exceed $2 billion in worldwide box-office revenue, Disney will miss our FY2016 and consensus earnings estimates as well," according to an analyst note.

BTIG said it expects Disney's earnings-per-share growth to "slow dramatically and miss Street consensus expectations in 2017 and 2018." The current multiple is unwarranted, it said.

"In turn, we are reducing our rating on Disney to sell from neutral with a $90 one-year price target."

Shares of Disney were down more than 3 percent midafternoon Friday.

Despite the dip, Martin Pyykkonen, senior research analyst at Rosenblatt Securities said he thinks "Star Wars" will move Disney's stock higher.

"Obviously everyone's focused on the opening weekend," he told CNBC's "Power Lunch" on Friday. "I think the bigger story here and if you go back to 'Avatar' six years ago — and I think this is going to apply to 'Star Wars' — it's going to have long legs into the new year."

Pyykkonen added although people are busy during the holidays, the movie will hold steady at the box office through March or April. In fact, the film doesn't open in China until early January so he thinks those factors will play into a future stock move.


Other reasons for BTIG's downgrade include how much the network paid for its sports rights for its ESPN channels.

The note read: "Disney management made a fundamental mistake by overpaying for sports rights based on overly aggressive multichannel video subscriber projections. Not only did Disney overpay for individual sports rights packages, they also acquired too many sports rights in an effort to prevent new competitors such as Fox Sports 1 and NBC Sports from growing stronger."

The result according to BTIG: "Disney's cable network profitability will meaningfully underperform investor expectations."

But not everyone agrees. Pyykkonen said although he understands BTIG's point about ESPN, those challenges are already reflected in the stock.

"Yeah I think ESPN is challenged. I think it's got a margin challenge in a lot of different ways, so I get that point, but, it's missing the fact of the portfolio of assets not only this film and the studio," he said. "And I think if you look at it that way, I'm still at a buy and still a $130 price target."

Pyykkonen said that he would not downgrade Disney stock and he thinks "it will outperform the S&P."