Raymond James Downgrades Disney, Cites Challenges in Theme Parks Sector

Source: Davit Kirakosyan

Disney Shares Down After Raymond James Downgrade

Disney (NYSE:DIS) shares experienced a decline of over 1% today following a downgrade by Raymond James from Market Perform to Outperform. The downgrade was attributed to various challenges, particularly within the Parks division, which are anticipated to maintain the stock within a range-bound trajectory for the next 12 to 18 months.

Challenges in Disney’s Parks Division

Despite a recent 12% uptick in Disney’s stock, analysts have expressed wariness regarding its short-term prospects. The Parks division of the company is facing issues such as slowing attendance and pricing power. Following a surge post-pandemic, demand has started to soften as consumers adapt to price hikes implemented over the last four years.

Competition and External Factors

Disney is also encountering heightened competition, particularly with the imminent launch of Universal’s Epic Universe in Orlando next summer. This launch is poised to pose a significant challenge in one of Disney’s crucial markets. Raymond James pinpointed three specific issues affecting Disney’s parks: a shift of attendance towards the Paris Olympics, a temporary closure of Shanghai Disney due to a typhoon, and a recent hurricane impacting Walt Disney World in Orlando. These disruptions have added to a more apprehensive outlook preceding Disney’s fiscal fourth-quarter report.

Streaming Strengths and Concerns

Raymond James acknowledged Disney’s robust position in the transition from linear TV to streaming, courtesy of its ownership of two major streaming platforms and a premier intellectual property portfolio. Nevertheless, they expressed apprehensions regarding the substantial costs involved in launching ESPN’s streaming service. While Disney’s upcoming three new cruise ships scheduled for launch by the end of 2025 are projected to enhance growth, Raymond James remarked that the capital expenditures needed would exert pressure on the company’s free cash flow in the immediate future.

Conclusion

In conclusion, the recent downgrade of Disney shares by Raymond James underscores the challenges facing the company, especially within its Parks division. While Disney maintains a strong position in the streaming industry and has promising projects in the pipeline, external factors such as competition and unforeseen disruptions continue to impact its performance. Investors are advised to closely monitor developments within the company as it navigates through these challenges in the coming months.

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