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Stock Analyst Update

Disney's Drop Is Excessive

We think fears of an advertising slowdown are overblown.

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What Happened?
Disney (DIS) on Thursday reported fourth-quarter earnings of $0.11 per share, $0.04 better than First Call consensus expectations. Excluding one-time charges, operating income increased 58% from last year's fourth quarter, to $898 million. Driven by the ongoing success of Who Wants to Be a Millionaire and higher ratings at ABC, Disney's media networks posted record results for the quarter, with revenue increasing 14% to $2.2 billion and operating income growing 26% to $460 million. Disney's theme parks and resorts also posted strong revenue and operating income, while the movie business improved modestly and the consumer products business continued its string of weak quarters. The shares were down about 15% in midafternoon trading.

What It Means for Investors
We believe Disney's stock is attractive at current levels, despite increased concerns about declining advertising spending and lower ratings for Who Wants to Be a Millionaire. During the conference call, chairman and CEO Michael Eisner said he didn't expect the dismal future for advertising spending that many predict. He did expect new ad revenue to be soft through the end of the year because of very strong upfront spending by advertisers. We concur that this trend has likely shifted only the timing, and not the total amount, of advertising spending. We also concur with management that good ratings and continued economic growth should support ad spending in 2001.

Richard Wilson has a position in the following securities mentioned above: DIS. Find out about Morningstar’s editorial policies.