Investing.com -- Raymond James downgraded Disney (DIS) from Outperform to Market Perform in a note Tuesday, citing several headwinds, particularly within the Parks division, that are expected to keep the stock in a range-bound pattern over the next 12-18 months.
Despite a recent 12% bounce, analysts believe Disney is unlikely to outperform meaningfully in the near term.
"Parks Are Under Pressure," Raymond James noted, stressing that park attendance and pricing power are slowing down.
Following a post-COVID surge, they said demand is now moderating as consumers digest price increases from the last four years.
Furthermore, Disney is said to be facing increased competition, particularly with the launch of Universal's Epic Universe in Orlando next summer, a key market for Disney. This competition is expected to be a major headwind.
Raymond James highlighted three specific challenges affecting Disney’s parks: the Paris Olympics pulling attendance away from Disneyland Paris, a typhoon that temporarily closed Shanghai Disney and the impact of a recent major hurricane on Walt Disney (NYSE:DIS) World in Orlando.
These factors contributed to a cautious outlook heading into the company's fiscal fourth-quarter report.
While the firm acknowledges Disney's strong positioning in the transition from linear TV to streaming—particularly through its ownership of two scaled streaming services and a leading portfolio of intellectual property—Raymond James remains concerned about the high costs associated with launching ESPN's streaming product.
Raymond James also noted that while Disney's three new cruise ships, expected by the end of 2025, will contribute to growth, they will bring significant capital expenditures that will pressure free cash flow in the near term.
Raymond James expects "low-single-digit growth in EPS and FCF" over the next two years, keeping the stock range-bound. "We find additional multiple expansion unlikely," the note concludes.