Disney Trading Lower After Barclays Downgrade
Dow component Walt Disney Co. (DIS) is trading lower by nearly 2% in Monday’s pre-market after Barclays downgraded the entertainment giant to ‘Equal Weight’ and lowered the price target to $175. The stock has struggled since topping out in March, losing about 15% of its value while posting a negative annual return of 5%. More importantly, price action has been testing the 200-day moving average for five months, raising odds for a breakdown that ends the long-term uptrend.
Cautious Business Commentary
The Mouse is ‘running into roadblocks’ to China film releases according to the Wall Street Journal, with the broad appeal of ‘Shang-Chi’, ‘Mulan’, and ‘Eternals’ running to political opposition that’s impacting box office receipts. Meanwhile, attendance at California Disneyland has reached just 85% of 2019 levels while foreign venues are posting even greater reductions. Adding to bearish sentiment, Variety is reporting that subscriber turnover a.k.a. ‘churn’ for the Disney+ streaming service reached the highest level in a year in August.
The stock dropped like a rock in September after Disney issued a cautious business outlook, warning the Delta variant had caused production delays while confirming that dividends and share buybacks would not be reinstated anytime in the near future. It also warned that Disney+ subs would increase by just low single-digits in the quarter after torrid growth in 2020. Emerging markets are also waving red flags, with the company noting “headwinds in Latin America trying to mobilize partners.”
Wall Street and Technical Outlook
Wall Street consensus makes little sense, yielding a ‘Buy’ rating based upon 21 ‘Buy’, 2 ‘Overweight’, and 6 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions despite 2021’s negative return. Price targets currently range from a low of $147 to a Street-high $263 while the stock will open Monday’s session more than $35 below the median $210 target. This low placement suggests that starry-eyed analysts have failed to consider Delta headwinds.
Disney sold off to a 6-year low in March 2020 and returned to the December 2019 peak at 153.41 in November, ahead of an immediate breakout that posted an all-time high at 203.02 in March 2021. It sold off to 167.10 in May, rounding out a trading range that’s contained price action into the fourth quarter. Range support has narrowly aligned with the 50-week moving average, marking a line-in-the-sand that bulls must hold at all costs to continue the uptrend.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire
