Disney shares fall after BTIG cuts to 'sell' on ESPN woes

(Reuters) - Walt Disney Co’s shares slumped after BTIG analyst Richard Greenfield cuts his rating to “sell” from “neutral”, saying the likely success of the latest Star Wars movie would not be enough to offset the impact of subscriber losses at ESPN.

The signage at the main gate of The Walt Disney Co. is pictured in Burbank, California, May 7, 2012. REUTERS/Fred Prouser

Disney’ shares fell as much as 3.6 percent to $108.01 on Friday as BTIG became the only brokerage among 33 to rate the stock “sell”.

The company first warned of subscriber losses at ESPN in August and since then other media companies have spoken of concerns that viewers are increasingly opting for online streaming over pay TV.

Disney’s management made a mistake by overpaying for sports rights based on “overly aggressive” multichannel video subscriber projections, Greenfield wrote in a note to clients.

“ESPN now appears poised to become Disney’s most troubled business as consumer behavior shifts rapidly,” he said.

BTIG thinks “Star Wars Episode VII: The Force Awakens” would help Disney “modestly” top earnings estimates in 2016, but said consensus estimates were “too high” for 2017 and “far too high” for 2018.

“Our problem is not 2016 ... our problem is that we don’t think they have significant growth from there forward,” Greenfield said on CNBC.

Greenfield said Disney’s cable network’s profitability would meaningfully underperform investor expectations, which would eat into operating income in 2017.

Cable networks represents about 46 percent of Disney’s total operating income.

Greenfield said if the new Star Wars movie did not rake in more than $2 billion in worldwide box office revenue, Disney would miss Wall Street’s profit estimates in 2016 as well.

BTIG had a “buy” rating on the stock for five years until March, Greenfield said on CNBC.

Disney’s shares were down 2.3 percent at $109.39 in late morning trading. BTIG has a price target of $90 on the stock.

Reporting by Devika Krishna Kumar in Bengaluru; Editing by Savio D’Souza