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Goldman Sachs says market overreacted on Disney

The Associated Press

The market overreacted this week to the Walt Disney Co.'s comments on its current quarter, according to a Goldman Sachs analyst.

THE OPINION: Disney's Chief Financial Officer Jay Rasulo on Thursday told a group of analysts gathered for the Nomura Global Media & Telecom Summit that the company's film studio operating income, cable network affiliate fees and parks revenue could suffer in fiscal third quarter, which ends in June.

The news sent shares of the company down nearly more than 3 percent at one point Thursday.

Drew Borst of Goldman wrote in a note Friday the market's reaction is "mouse ado about nothing" as the CFO's comments were largely a reiteration of prior comments.

Disney said that film studio operating income is expected to be down $150 million year over year due to impact of promoting "The Lone Ranger" on the quarter, which also suffers by comparison to last year when it released the very popular movie "The Avengers." Disney had not, until this week, quantified that impact.

The company also said that its cable network affiliate fees will be down 3 percent due to some revenue-timing issues. And its parks revenue should be down $65 million due to an earlier Easter and the positive impact last year of a new cruise ship.

The analyst said that Disney clearly believes that the market's estimates for the third quarter are too high. Borst said the company is putting more detail and numbers on pressures that it had already discussed and that the decline in Disney shares following the comments was an overreaction.

He reiterated a "Buy" rating on Disney shares and a $70 price target but did lower some of his segment forecasts for the company based on the presentation.

THE STOCK: Disney's shares dropped from an opening price of $66.44 to a close of $64.65 Thursday. By afternoon trading on Friday, the stock had leveled out at $64.30, down 35 cents.

Its stock price remains at the upper-end of its 52-week trading range of $44.14 to $67.89.