Stock analysts say Disney stock too expensive

Tue Dec 16, 2008 8:10pm EST
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By Georg Szalai

NEW YORK (Hollywood Reporter) - The Magic Kingdom has lost some of its Wall Street magic.

Shares of Walt Disney Co have held up better in this turbulent year than any of its peers. Investors have lauded a strong management team and solid business strategies and execution for keeping the company shielded from recession woes longer than other media biggies.

But now, a growing chorus of Wall Street observers argues that Disney's stock trades at too much of a premium to its sector peers, especially amid recent reductions to earnings estimates.

In other words, it might be too expensive compared with its sector rivals, especially in a recession economy.

Last week, for example, Pali Research analyst Rich Greenfield downgraded shares from "buy" to "neutral."

"While Disney has long traded at premium earnings and free-cash-flow multiples to its large-cap media peers, its valuation gap has meaningfully widened over the past month to a level that we can't ignore," he said in a report.

Greenfield reduced his earnings estimates for Disney on November 18, when the conglomerate's stock traded at a 2009 price/earnings multiple of 10.4 times and a free-cash-flow multiple of 11.7 times.

In issuing his downgrade, the Pali analyst highlighted that Disney was trading at a price/earnings multiple of 13.1 times, compared with Viacom's eight times and News Corp.'s nine times multiples. Meanwhile, Disney's free-cash-flow multiple had ballooned to 15 times, well ahead of Viacom's seven and News Corp.'s eight.   Continued...

<p>Disney characters Mickey Mouse (R) and Minnie Mouse pose at the premiere of the Disney Channel movie 'High School Musical 2' at Downtown Disney in Anaheim, California August 14, 2007. REUTERS/Fred Prouser</p>