Disney's slowing park attendance will weigh on the stock for the next 12 to 18 months, analysts say

By Ciara Linnane

Stock falls after Raymond James downgrades it to market perform from outperform

Walt Disney Co.'s stock fell 0.9% in premarket trade Tuesday, after Raymond James downgraded it to market perform from outperform, and said a number of headwinds, notably its park division, will keep it range-bound for the next 12 to 18 months.

Analysts Ric Prentiss and Brent Penter said feedback from 20 Disney super fans, travel agents, and local business owners, and as Disney (DIS) confirmed on its fiscal third-quarter earnings call, park attendance and pricing power is slowing meaningfully.

For more, see: Disney makes a profit in streaming, but parks business feels spending pressure

"Demand is moderating after a strong post-COVID surge, consumers are still digesting price increases taken in the past 4 years, and a questionable consumer outlook further complicates the picture," the analysts wrote in a note to clients.

Lapping the slowdown in growth, next summer Disney is facing another big headwind when Universal, owned by Comcast Corp. (CMCSA), launches its Epic Universe in Orlando and increases competition in Disney's biggest market.

"We view parks growth as the most important and critical factor for the Disney stock, and find stock outperformance likely to be difficult until Parks improve," said the note.

And while the three new cruise ships expected to be added to the company's fleet by 2025 may help boost growth, they come with large final capex payments that will pressure free cash flow. Those ships are more likely to be positive catalysts in 2026 and not 2025, said the note.

Raymond James is expecting fiscal 2025 operating income from "experiences" to come in about 2.5% below the current Wall Street estimate of about $9.32 billion.

The analysts are also cautious about the stock ahead of Disney's fiscal fourth-quarter earnings, as they expect the company lost business at Disneyland Paris this summer during the Olympics, lost ground in Shanghai after a typhoon closed its resort for two days and lost business in Florida during the recent hurricane there.

"We still believe Disney is the best positioned Traditional Media company for the continued transition from Linear TV to Streaming given its ownership of 2 scaled streaming services, massive exposure to the strong-performing sports segment, significant parks cash flows supporting the media business, and in our opinion the best portfolio of franchise IP in media (WBD (WBD) being a close second)," the analysts wrote.

They are also upbeat on the ESPN streaming product, although the costs of getting it off the ground "could be significant."

Read also: ESPN working on AI to personalize programming for its upcoming streaming service

Overall, Raymond James is expecting free cash flow to grow by a modest compound annual growth rate of about 4% in the next roughly two years, pressuring the stock in that period.

Disney's stock has gained 6.5% in the year to date, while the S&P 500 SPX has gained 20.8%.

-Ciara Linnane

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-01-24 0803ET

Copyright (c) 2024 Dow Jones & Company, Inc.