The brokerage firm said Disney's current price doesn't reflect its bid for FOX's assets
Pivotal Research downgraded Walt Disney Co (NYSE:DIS) to "sell" from "hold," saying the Dow stock's recent run up the charts doesn't price in the company's buyout offer for Twenty-First Century Fox's (FOXA) entertainment assets. The brokerage firm also said Disney "would be further weakened" should the transaction fail to go through or it undergo a bidding war with Comcast (CMCSA) -- with CNBC reporting this morning that former is expected to increase its cash offer for the Fox assets.
The brokerage firm also maintained its $93 Disney price target -- a more than 14% discount to last week's close at $108.85 -- though it noted that "Disney is fine without the Fox buisness," at a strategic level. Out of the gate, DIS stock is down 1.7% to trade at $107.03 -- on track to log just its second down day in nine trading sessions.
In fact, since entering this month below the century mark, Disney stock had surged more than 9%, as of last Friday's close. Meanwhile, today's downside could be contained in the $107.25-to-$107.50 range, home to a 61.8% Fibonacci retracement of the equity's January-through-April drop and its year-to-date breakeven mark, respectively.
On the sentiment front, today's Disney downgrade just echoes the growing skepticism toward the blue chip seen elsewhere. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 1.11 ranks in the 70th annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip in recent weeks.
Regardless of whether options traders are targeting calls or puts, though, now's a prime time to buy premium on the stock. Disney's Schaeffer's Volatility Index (SVI) of 20% ranks in the 23rd annual percentile, meaning short-term options are pricing in relatively low volatility expectations at the moment.