Morgan Stanley lowers forecast on Disney

Morgan Stanley Research today lowered its 2009 earnings forecast for the Walt Disney Co., citing slowing consumer spending on home entertainment, declining advertising growth at ESPN and concerns about the theme parks.

Analyst Benjamin Swinburne shaved his projections of Disney's earnings per share to $1.92, from $2.05, because of the company's bearish prospect in the recession and how it will pinch consumer spending.

Home entertainment revenues for the entire industry will decline this year, Swinburne wrote, as DVD sales continue to decline and purchases of the Blu-ray discs and downloads of online movies fail to pick up the slack. Although he expects consumers increasingly to gravitate to the new high-definition movie discs, home entertainment won't return to growth until 2011, he wrote.

The bigger concern is the recession's effect on Disney's cable sports powerhouse, ESPN. Swinburne wrote that the network may be more vulnerable because it relies heavily on automakers, and extracts premium advertising rates in a softening market. General Motors decided it would not run commercials during the Super Bowl this year, demonstrating that sports is not immune.

Disney's films also had a mixed holiday reception, Swinburne noted, as Adam Sandler's "Bedtime Stories" generated more than $100 million in ticket sales worldwide in just three weeks, but the 3-D animated release "Bolt" -- which was supposed to herald the comeback of Disney's animation division -- was "slightly disappointing" at only $172 million in global box office to date.

Swinburne, however, said he remained "positively biased" toward Disney in the long term and restated the company's equal-weight rating. Disney's stock traded at $21.13, down 74 cents in midday trading.

-- Dawn C. Chmielewski

Photo: Disney Animation building. Credit: Francine Orr / For The Times