Another Wall Street Pro Sours on Disney Stock

Image source: Disney.

It's been 13 months since shares ofDisney(NYSE: DIS)hit an all-time high, and at least one analyst thinks that it won't be revisiting those levels anytime soon.Drexel Hamilton's Tony Wible downgraded shares of the media giant from buy to hold this morning, and slashed his price target from $112 to $102.

Wible's concerns aren't materially different from those of other Wall Street pros that have taken a more cautious stance on Disney these days. The naysayers often point to rising programming costs at ESPN relative to its gradual slide in cable subscribers, and Wible points directly at the escalating costs associated with its NBA contract.

It's not just Disney's media networks division that's giving Wible pause. He is also concerned about the difficult theatrical comps that its movie studio is facing. That's fair. Star Wars: The Force Awakensrelease last holiday season will be a hard act to follow. Wible also feels that the costs out of Shanghai -- where Disney opened its newest theme park resort in June -- will weigh on its bottom line in the new fiscal year that kicks off in a few days.

Wible concludes that Disney may not be able to justify the market premium it commands relative to its media group peers, especially if market volatility continues to be a problem. Spoiler alert: Market volatility will continue to be a problem.

There's a great big beautiful tomorrow

There's merit to the analyst's concerns, but there are also effective counterpoints for every knock. There's no arguing that Wible is nailing a pressure point with investors when it comes to ESPN, and his fear that NBA costs are about to more than double -- increasing costs there alone by $690 million to $740 million -- makes one wonder if it's better off just emphasizing its news shows, e-sports, or less expensive athletic leagues. However, lost in all of this is that Disney's still growing here. Its media networks division -- Disney's largest -- has seen its revenue and operating profit grow 3% and 2%, respectively, through the first nine months of fiscal 2016. That's not the kind of heady growth that investors like to see, but at least the small steps are going in the right direction.

On to Hollywood, where Disney's had an amazing run over the past year. It's not just the return of the Star Wars franchise. Disney's studio entertainment division has experienced a 37% pop in revenue and a heartier 61% surge in operating profit through the first three quarters of fiscal 2016. Disney is the studio behind four of the six highest-grossing movies this calendar year, and its own Marvel is the source one of the two it didn't put out: Deadpool.Rogue One isn't going to fare as well as Star Wars: The Force Awakens this upcoming holiday season, but there are always potential winners in Disney's pipeline.

Disney is in more of a bind when it comes to its theme parks. It suffered a 4% decline in attendance at its domestic resorts during the June quarter, and there's little reason to expect that to reverse itself during the current quarter, which is a seasonally potent period for that segment. However, just as ESPN is making up for the loss in volume by milking more out of its viewers, Disney's theme park resorts continue post positive revenue and segment earnings growth. Disney's tickets and annual passes cost more now than they did a year ago, and it will probably be true again next year.

Wible's concerns about Shanghai Disney are on point. The resort opened late and reportedly ran over its initial budget, but Disney owns just a minority stake in the project. Shanghai's Shendi Group owns 57% of the resort. Closer to home, the opening next year of an Avatar-themed land at Disney's Animal Kingdom should provide a bigger boost in attendance than this summer's weak slate of new additions.

Disney has earned its market premium. It has the hottest movies at the multiplex, and its theme parks are unrivaled in terms of attendance and resulting revenue. ESPN may be running through a rough patch, but it remains the top brand in its niche. Even Wible's seemingly neutral price target of $102 suggests reasonable upside from this point. Disney's down, but it's certainly not out.

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Rick Munarriz owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.