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Why Disney stock is getting downgraded

Why Disney stock is getting downgraded
[Photo: Flickr user Loren Javier]

It was only a week ago that a federal judge ruled in favor of AT&T, making it possible for the telco to acquire Time Warner. Beyond having an impact on its own deal, this ruling is already causing industry-wide tectonic shifts. One such example is Disney, which bid on 21st Century Fox last year, only to be outbid last week by Comcast. Comcast, it seems, was emboldened by the AT&T ruling.

So what does that mean for Disney? For one, the company will have to significantly up its bid if it wants to go to bat with Comcast over Fox. And as Pivotal Research Group analyst Brian Wieser says in a new note, this will likely weaken Disney’s strategic position.

Wieser writes: “if Disney has to pay a higher price for the Fox Entertainment assets because it engages in a bidding war with Comcast, [then] Disney’s value would be negatively impacted as it would reduce the incremental value the company should be able to generate from synergies associated with the acquisition.” Conversely, if Disney loses out on the acquisition, it wouldn’t gain any new value whatsoever.

Because of this, Pivotal is downgrading Disney from “hold” to “sell.”

Disney stock has been looking good over the last week. Although, this morning it’s already down nearly 2%. Currently, shares are at $106.68; Wieser’s price target is $93.

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