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The Ratings Game: Disney stock sentiment has ‘deteriorated,’ but this analyst says not all hope is lost

Investors seem to be feeling the Walt Disney Co. magic less and less these days, according to an analyst.

“Over the past several weeks, the tone of incoming calls about DIS has shifted distinctly negative, and sentiment has further deteriorated since CFO Christine McCarthy left last week,” Needham’s Laura Martin wrote Wednesday.

Read: Disney’s story gets ‘another wrinkle’ as CFO transition adds to laundry list of uncertainties

In her view, Disney DIS, -1.24% fails to hit on the trends that are hot with Wall Street these days. “Cyclically, at this point in the investment cycle we, and many investors, prefer 100% ad-driven names,” she wrote, or else investors are looking for Big Tech names and those that can be plays are the trend of generative artificial intelligence.

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Disney, meanwhile, has its share of challenges. The company’s linear television business is shrinking, and it’s still losing money in streaming. Plus, it has a “messy” stock chart, according to Martin, who rates the stock a hold.

“We note that sellers far outnumber buyers at both $90/share and $95/share, creating a double ceiling on DIS share price appreciation, we believe,” she wrote. Disney shares are up 2% so far this year, as the S&P 500 SPX, -0.52% has advanced 14%.

That said, things aren’t hopeless, as she points to several potential positives in the pipeline. Disney’s free-cash flow and earnings per share could benefit from the ongoing writers’ strike in her view, and actors may go on strike as well.

“These strikes benefit the near-term P&Ls [profit-and-loss statements] of all content and streaming services,” she wrote.

See also: Disney’s streaming opportunity might be misunderstood. Here’s why.

Plus, Martin continues to believe that Apple Inc. AAPL, -0.57% might buy Disney.

“We believe that consumer-facing companies must compete for attention,” she wrote Wednesday. “There is nothing that generates longer attention spans than compelling storytelling.”

See more: Apple buying Disney? Analyst explains why they’re ‘worth more together’

Though Apple generates $90 billion in free-cash flow annually, it doesn’t own content assets, while Disney houses the Marvel, Star Wars and Pixar franchises, along with its princesses.

Martin previously hypothesized that Disney might be more appealing to Apple now that the consumer-electronics giant is making its push into mixed reality, having emphasized immersive content when it debuted the Vision Pro headset earlier this month.

That said, Apple has eschewed big acquisitions, and while the company is in the process of winnowing its net-cash balance down to about zero, it’s preferred to chip away at that target through dividends and stock buybacks.

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