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Thursday, July 13, 2006

Most Widely Traded 48 Hour Clock: Disney Gets Dissed

Stocks: (DIS)

24/7 Wall St. has begun coverage of the 36 most widely traded stocks, eighteen each from the NYSE and the NASDAQ. Most of these stocks trade over 50 million shares a week. This new feature will highlight each of the 36 stocks at least every 48 hours giving investors fresh infomation and perspective on the companies whose shares are most likely to move the broader markets.

There was a certain elegant idiocy to the downgrade of Disney today by CIBC World Markets. Their argument is that the second half will be strong for Disney, so 2007 may loke weak in comparison. Theme park attendance may slow and comparisons with this year's ABC ratings could be poor. Dilution from Pixar should also cut into EPS.

Either Pixar was a good buy or not. Based on the market's reaction when Disney did the deal, most investors feel it was the right think for Disney to do. If so, a revision of that that uses dilution as a excuse to view the deal in a diffenent light is a bit odd. The dilution was there from the day the deal was announced.

It is now rumored that Disney will cut its number of films produced per year from 18 to 8. If so, the marketing budget goes up for each one, certainly an advantage. In addition, the cost at the studio drops as head count and overheard go away. The company's studio business did poorly ove the last six months ending April 1, with revenue falling from $4.622 billion in the year ago period to $3.819 billion in the recent quarter. Operating profit in the unit fell by almost half to $275 million for the same period.

The Disney "Prirates of the Caribbean" franchise will help the second half of calender 2006, but the third installment of the franchise will help 2007 results.

Disney is also beginning to distribute its films and ABC content digitally. This may have little effect on 2006 results, but there is a potential for its to add to revenue and operating profit in 2007. Most of this content has already been created for the studio and network, so the margins on internet and digital distribution should be quite high.

Disney's stock dropped 3% on the downgrade, falling to $29. It is an reaction that is not supported by the facts.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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