Mouse Trap: Imperial Capital Downgrades Disney, Sees Theme Park Risk

Walt Disney DIS shares lost nearly 4% Thursday after Imperial Capital downgraded the company's stock.
The Disney Analyst

David Miller downgraded Disney from In-Line to Underperform and lowered the price target from $107 to $105.

The Disney Thesis

Imperial is lowering its fiscal year 2020 and 2021 estimates for Disney due to a more conservative outlook for theme park volumes, Miller said in the Thursday downgrade note. (See his track record here.)

"With DIS shares rising 21.2% over the last four weeks, the stock has risen too far too fast and the performance is due simply to excitement around the prospects of the domestic theme parks re-opening," the analyst said. 

Investors should take profits, as Disney now looks like a name that should be “traded” rather than “owned" at this point, he said. 

When Imperial downgraded Disney to In-Line in June 2019, it was on the basis of valuation and performance consistent with the firm's prior rating, Miller said. 

Oil Spike Will Impact Theme Parks

Theme parks could see a material downturn in the event of an oil spike, the analyst said. 

"Other than its four cruise ships, DIS does not operate a fleet of aircraft, buses, or any other form of fossil fuel based transportation." 

Consumer attendance and spending at Disney's parks is highly related to consumers getting there via public transportation, Miller said. 

"In the event that the price of crude, jet fuel and gasoline spikes to levels that force consumers into a 'cocooning' effect, DIS shares could see material downside."

DIS Price Action

Disney shares were down 3.93% at $116.75 at the close Thursday. The stock has a 52-week high of $153.41 and a 52-week low of $79.07.

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