By Yasin Ebrahim
Investing.com – Disney is set to report quarterly earnings on Tuesday, but some on Wall Street are warning that the results are likely to signal the company's biggest businesses are in for rockier ride than many expect.
Moffett Nathanson downgraded Disney to neutral from buy and lowered its price target on the stock to $112 from $120, on worries that lockdown measures, including to social distancing, and a potential second wave of Covid-19 infections pose "significant and unrivaled earnings risk for the foreseeable future."
Walt Disney (NYSE:DIS) fell 3%
"Our analysis makes it clear to us that Disney is in for a long stretch of significant negative revisions as estimates catch up to the grim reality, said Moffett Nathanson. "Our Disney downgrade is also an admission that we believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening."
The investment firm cut its estimates on Disney's earnings by $0.80 a share to $2.35 a share for 2020, by $1.40 to $2.95 for 2021 and by $1.05 to $4.40 for 2022.
Disney's theme parks and studio entertainment businesses, which together account for about half of overall revenue, and its media networks business would likely suffer a worse-than-first-projected advertising decline in the coming quarters, Moffett Nathanson said.
While the lockdown measures will boost other areas of the company's business, particularly in streaming – Hulu and Disney+ -- the units "do not contribute free cash flow to offset the erosion elsewhere," the firm added.
Others on Wall Street also trimmed their outlook on Disney ahead of quarterly earnings, with Morgan Stanley (NYSE:MS) cutting its price target on the stock to $125 from $130.
Disney is expected to report earnings of 94 cents a share on revenue of $18.08 billion.