An analyst who recently downgraded Walt Disney Co. stock says weakness in the company’s parks division is negatively impacting its near and medium-term outlook.
Ric Prentiss, managing director of tech, media and telecom research at Raymond James, told BNN Bloomberg in a Wednesday interview that Disney’s parks have always been a critical part of its stock valuation, and he’s concerned about the external pressures the business is facing.
Some of those pressures include extreme weather events which have impacted travel to the company’s parks in Asia and Florida, he said, as well as decreased attendance to Disneyland Paris this summer as the nearby Olympic games pulled visitors away.
On Tuesday, Raymond James dropped its rating for Disney to “market perform” from “outperform,” with a price target of US$101. Disney shares were trading at around $94 in midafternoon New York trading on Wednesday.
More broadly, Prentiss said Disney is dealing with an overall flattening of demand as the post-pandemic travel surge normalizes.
“That demand is moderating after that pent-up demand came in,” he said.
“Consumers also are still digesting some price increases at the park – it’s a very expensive vacation now. Prices have increased over the last four years and let’s face it… there’s some concern about how strong the consumer outlook is.”
Prentiss said that in addition to these challenges, Disney will have to face increased competition in its own backyard.
“You’ve got a major competitor getting ready to launch; Universal Epic Universe in Orlando is going to open this coming summer, which we think could add extra pressure in the short term,” he said.
Prentiss added that from a long-term investment perspective, he’s pleased with Disney’s current capital spending plans, which will “freshen up” existing parks by adding new lands, rides and attractions, but he said it will take time to see returns on those investments.
And despite the number of near-term challenges Disney is facing, Prentiss said prices at its theme parks aren’t at risk of falling.
“We don’t think prices are coming down… we do think attendance can go up as well,” he said.
“It’s not that we think it’s going to be a reduction in the pricing, it’s just that there’ll be pressure in how much growth can you actually achieve.”