Disney Shares Slump

Shares of Walt Disney Co. fell along with the broader market decline on Thursday, as CIBC World Markets downgraded the stock on concerns that the company's potentially robust 2006 profits are already reflected in the current price.

Disney lost 97 cents, or over 3 percent, at $28.94 in afternoon trading on the New York Stock Exchange. In the past year, the stock has moved between $22.89 and $31.03.

CIBC analyst Jason Helfstein cut the stock to "Sector Underperformer" from "Sector Performer."

Helfstein said Disney is positioned to deliver strong earnings growth in the second half of 2006, but "we believe this is already priced into the stock."

The analyst expects the company's broadcast network, ABC, to benefit in 2006 from high ratings for shows such as "Desperate Housewives" and "Lost" by raking in more advertising revenue. National elections should also spur ad spending in September and October, he thinks.

Helfstein expects Disney cable channels ESPN and Disney Family to boost revenue by 11 percent in 2006 on the strength of higher affiliate fees wrung from cable companies that carry them.

Disney's movie studios have been "on fire," the analyst said, citing the hits "Pirates of the Caribbean: Dead Man's Chest" and "Cars."

Helfstein left unchanged his earnings estimates for 2006, but cut sharply his 2007 targets.

"Our analysis of (fiscal 2007) suggests slower growth, resulting from fewer shows in syndication, difficult ratings comparisons at ABC, slower growth at theme parks and a full year of Pixar dilution," the analyst wrote.

He now expects 2007 per-share earnings of $1.61, down from his prior estimate of $1.70 and below Thomson Financial's average estimate of $1.65.

At ABC, Helfstein said the current ratings will be difficult to top and the company will have fewer shows in syndication, which should keep operating earnings growth at 6 percent.

The analyst expects profit margins at the cable franchises to shrink as ESPN increases expenses for its mobile phone service and Disney Family faces higher programming costs.

Helfstein sees a bright spot at Disney studios, which include Walt Disney Pictures, Touchstone and Pixar. He expects new movie releases and DVD sales of current hits to deliver a 27 percent gain in earnings before interest, taxes, depreciation and amortization in 2007.


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