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Disney Stock Fell on Rating Downgrade from Imperial Capital

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Jun. 17 2019, Updated 12:08 p.m. ET

Imperial Capital downgraded Disney stock

Imperial Capital downgraded Walt Disney (DIS) stock from an “outperform” to an “in-line” rating on its valuation. However, the firm has maintained its price target of $147.00 on the stock. According to Imperial Capital analyst David Miller, Disney’s stock has returned nearly 26% since it placed an “outperform” rating on the stock in November. According to a CNBC report, the analyst stated that “the stock is trading at a record valuation on one basis.”

Disney was trading at $141.65 as of June 14. The stock was down 0.6% on Monday in pre-market trading after the analyst downgraded the stock. However, Disney stock has gained 29.2% in the year-to-date period as of June 14, higher than the S&P 500, which increased by 15.1% in the same period.

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Disney’s valuation

Disney’s stock currently trades at 21.6x its fiscal 2019 (which ends in September 2019) estimated EPS of $6.56 and 21.9x its fiscal 2020 estimated EPS of $6.48, which looks unattractive based on the projected declining rates of ~7.3% and ~1.3% in those periods.

Disney’s earnings have been declining for the past two consecutive quarters due to a significant investment in the launch of its streaming services. In Q2 2019, Disney’s earnings declined 13% YoY due to a double-digit decline in operating income.

Disney is set to launch its Disney-branded streaming service called Disney+ on November 12 to directly compete with streaming rivals like Netflix, Amazon Prime video, and HBO Now, among others. Disney already has sports streaming service ESPN+, which was launched in April 2018 to combat falling ESPN subscribers.

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