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Wall Street firms issued bearish calls on the Walt Disney Club (DIS) and Estee Lauder (EL) holdings over the weekend. Here’s a rundown of the headlines, along with our take. Walt Disney DIS YTD Mountain Performance of Disney shares since the beginning of the year. The news: Wolfe Research downgraded Club holding Disney Friday from comparable performance, or neutral, to outperformance, while removing its price target of $133 on Disney shares. Wolfe does not keep price targets on the stocks he peer reviews. Company analysts were disheartened by the “deteriorating” outlook for Disney’s direct-to-consumer (DTC) subscriber base and linear TV growth after the entertainment giant’s mixed second-quarter results earlier. this week. During the quarter, losses for Disney+, the company’s flagship streaming service, improved, but it still lost subscribers for the second consecutive quarter. Analysts also noted that advertising market weakness could “continue into the second half of the fiscal year.” Still, analysts predicted that Disney could “achieve higher mid to long-term earnings and remain a premium content and brand factory.” The Club’s opinion: Following Disney’s latest results, we understand that subscriber losses have weighed on Disney shares, which have fallen nearly 10% since Wednesday. However, we believe Wolfe’s concerns are already priced into the current share price. During Disney’s fiscal second quarter, we were pleased to see average revenue per user (ARPU) increase and DTC operating losses shrink. We are not unaware of the fact that Disney has lost subscribers in national markets. This is part of a natural trade-off effect when a company imposes price increases on its goods or services. Higher pricing will lead to better levels of profitability over time, which is why we’re willing to let some weaker subscriber data slide over the next few quarters. We were also encouraged by the strong performance of the Disney Parks business, which generated profitable growth for the quarter. We remain patient with Disney’s turnaround under CEO Bob Iger and believe it can set the bar right, including cutting billions of dollars in costs and better monetizing content. Estee Lauder EL YTD mountain Estee Lauder stock performance year-to-date. The news: Argus downgraded its rating on prestige beauty brand Estee Lauder on Thursday to hold it, from the buy, following the company’s weak third-quarter fiscal 2023 earnings print on May 3. and in the travel retail segment in Asia.” They now estimate earnings per share (EPS) for fiscal 2023 to be $3.80, down from a previous estimate of $6 per share. Analysts also cut their EPS estimate for fiscal 2024 to $6 from $7.20 per share.Estee Lauder management said last week that international flights to China and Korea were “moderate” and that group travel was “slower to start”. Estee Lauder shares plunged 17% on earnings day and the stock has since been in the market’s penalty zone. Argus said that if he were a faster-than-expected rebound in China’s travel retail trade, he would consider turning the stock back to a buy. We weren’t expecting an outperforming quarter from Estee Lauder, but we were disappointed with the results. After the weak quarter and the time it takes for inventory levels to normalize, Estée Lauder’s next report won’t be strong either. At the same time, management said it was starting to see traffic picking up in Hainan Province, often called the Hawaii of China. And with Estee Lauder’s non-travel retail business in Asia growing 10% in the quarter, our conclusion is that the business is not facing a fundamental structural problem. It’s a temporary problem that will resolve itself as China’s economy continues to reopen after three years of strict Covid-19 regulations. We remain optimistic that broader consumer spending in China will return to pre-pandemic levels. (Jim Cramer’s Charitable Trust is long DIS, EL. See here for a full stock list.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY DUTY EXISTS, OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
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Wall Street firms issued downside calls on Club holdings waltz disney (DIS) and Estee Lauder (EL) at the weekend. Here’s a rundown of the headlines, along with our take.