'Up’ on Disney, But Still a 'Sell’

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Pali Research media analyst Richard Greenfield raised his 12-month price target on The Walt Disney Co. by 36% ($4.50) to $17 per share last Wednesday, but maintained his “sell” rating on the stock, adding that while his short-term thesis on the media giant may have been flawed, his long-term concerns still hold true.

Greenfield reiterated his concerns that expectations for double-digit earnings growth in 2010 are far too aggressive for Disney, but conceded that his concerns over its upcoming film slate were unfounded — the recent success of its Pixar animated feature Up far exceeded his expectations and he has renewed confidence in upcoming animated fare like Toy Story 3 (due in fiscal years 2010) and Cars 2 (due in fiscal year 2011).

Greenfield wrote that investors see fiscal 2009 as the trough for Disney, with hopes that the overall economy (and the company’s prospects) will rebound in fiscal 2010. He noted that in the past four months the S&P 500 Index has risen 30%, with Disney up 45% in the same time frame.

But Greenfield cautioned that the road ahead is rife with obstacles.

“We continue to believe the next 12 to 18 months will be substantially more difficult for Disney than investors are currently anticipating,” Greenfield wrote, adding that he expects a high single-digit earnings decline in fiscal 2010. Analysts’ consensus estimates are still anticipating strong earnings growth.