Disney gets a rare downgrade with analyst noting a 'record' valuation

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Chief executive officer and chairman of The Walt Disney Company Bob Iger

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Disney‘s stock is rising too far too fast, Imperial Capital said on Monday, noting the stock is trading at a record valuation on one basis.

In a rare downgrade on Wall Street for the popular shares, Imperial Capital lowered its rating for Disney to in-line from outperform and maintained its target price of $147 on Monday.

“The core rationale for lowering our rating to in-line is simply due to the fact that the stock has performed consistent with our previous outperform rating – up by 25.7% since we established that rating on 11/21/18, and ahead of the S&P 500, which is up 7.8% in that same span of time, ” Imperial Capital’s David Miller said in a note to clients on Monday.

The stock fell 0.8% in premarket trading Monday.

Disney’s stock has been on a tear, up nearly 30% so far this year after the announcement of Disney’s new streaming service Disney+ and the release of recording-breaking film, “Avenger’s Endgame.” Miller said these announcements, combined with the disposal of the Regional Sports Networks, are already built into the stock.

The analyst said Disney shares are now at “record multiples.”

“We have never seen DIS trade higher than an 18.0x multiple on the out year, and yet the stock is now at 21.7x our F2020 core, non-GAAP EPS estimate of $6.53, and 19.2x our F2021 revised non-GAAP EPS estimate of $7.36,” Miller said.

Disney is pretty much universally loved on Wall Street with 14 buy ratings and 4 hold ratings, according to Tipranks.com. No analysts recommend selling the stock. The last time Disney was downgraded by a firm was June of last year, when Pivotal moved to a sell rating from hold.

But Miller said other analysts are overlooking the fact that Disney’s media networks business is on the decline.

“It seems as if investors with higher targets than ours have perhaps forgotten that DIS’ legacy Media Networks business is essentially a “melting ice cube,” in our opinion,” said Miller.

And Disney+ and streaming service Hulu are both not set to break even until 2024, Miller added.

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