Walt Disney Co. (DIS), the world’s biggest entertainment company, dropped the most since November 2012 after Goldman Sachs & Co. downgraded the stock.
Disney slid 3.7 percent to $61.98 at the New York close. The stock fell the most among the 30 companies in the Dow Jones Industrial Average (INDU), which declined 2.3 percent after the Federal Reserve said it may cut back its bond purchases. The shares have gained 24 percent this year.
Disney’s ESPN faces rising costs for sports broadcast rights and new competition from News Corp. (NWSA)’s Fox Sports 1, which begins airing in August, Drew Borst, an analyst at Goldman Sachs (GS), wrote in a report published today. He lowered Disney’s rating to neutral and removed the Burbank, California-based company from the firm’s “conviction buy” list. Borst didn’t change his 12-month price target of $70.
ESPN, which provides about 45 percent of Disney’s operating income, will be less profitable next year due to the higher cost of airing NFL football, Major League Baseball and college sports, Borst wrote. Fox Sports 1 will drive up prices by competing for TV rights. ESPN’s NBA basketball contract expires after the 2015-2016 season and its Nascar rights expire next year, he wrote.
Disney’s cable channels, including ESPN and ABC Family, produced $5.7 billion in operating income on revenue of $13.6 billion in the fiscal year that ended Sept. 29. In that same period, Disney reported total operating profit of $9.96 billion on $42.3 billion in revenue.
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