Lehman Trims Disney Estimates, but Sees Upside to Stock

Lehman Brother's Stuart Linde trimmed his estimates on Walt Disney's(DIS) earnings for the current year and next fiscal year, but said the stock was becoming more attractive now that miscued hype over its summer's blockbuster bomb has subsided.

"We are moderating our Disney 4Q01 and 2002 estimates to reflect the current weak TV ad market and softness at the theme parks," Linde wrote in a note today. Saying the theme park business generally lags behind the rest of the economy, Linde wrote: "Investors are clearly worried about the near-term results from the theme parks, which is likely to create some near-term weakness but possibly provide a long-term buying opportunity."

He shaved a penny off his fourth-quarter 2001 earnings estimate to 15 cents a share from 16 cents, bringing the full-year estimate to 79 cents a share. He also lowered his estimates on each of the first three quarters of 2002, effectively cutting his full fiscal year 2002 earnings expectations to 89 cents a share from 94 cents a share.

The consensus among analysts polled by earnings tracker Thomson Financial/First Call is for Disney to earn 15 cents a share in the fourth quarter and 92 cents in 2002.

Linde said the 19.7% drop in Disney stock since May 22 is a buying opportunity because its valuation has become more reasonable. Too much hype over Disney's Pearl Harbor sent the stock climbing, Linde wrote. "The stock's recent move to $36 was based on the hype of Pearl Harbor (none of which was the company's doing)." The company did have something to do, however, with promoting the teen-heartthrob-cum-war-hero flop -- Chairman Michael Eisner predicted it would be the summer's top-grossing film -- but it wasn't alone.

On May 21, just one day before Disney's stock hit its highest close since early November, Salomon Smith Barney's Jill Krutick upgraded the company to buy from outperform, saying the movie's imminent success could provide "psychological impact" to help Disney's stock.

The Hollywood Stock Exchange, an online exchange where people can buy or sell shares of so-called MovieStocks, reflects how much money investors think a movie will gross in the first four weeks it runs. Pearl Harbor MovieStocks peaked at $45.69 a 'share.' They now trade around 32 cents a share (in 'Hollywood Dollars').

So who's been right? One of the timeliest calls on Disney in recent months was UBS Warburg's Christopher Dixon, who downgraded Disney to buy from strong buy on May 22. After that, Goldman Sachs downgraded the company to market outperform and off its Recommended for Purchase list, and Prudential Securities' Katherine Styponais last week downgraded it to hold from buy.

While Linde said he has concerns about theme-park revenue and cable-television advertising, he maintained his buy rating and $34 dollar price target. Disney closed 2.1% lower on Tuesday to $27.10.

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