So now the news is out. If you read me earlier or someone else as early as last night, then you know that Bob Chapek is out as CEO of The Walt Disney Company (DIS) , and former CEO Bob Iger is back in on a two year deal.
Will Iger stay forever? No, the man is 71 years of age, and tried to retire from this job several times prior to finally doing so in 2020. He is in because the firm is in disarray, the stock has been down BIG, and losses are mounting across two key businesses... Direct to Consumer and Content Sales/Licensing.
Did I mention that the employees are unhappy, the customers have been falling out of love with the company and the balance sheet kind of stinks? That's why the Board brought back a familiar face who the employees, customers and shareholders would both have some lingering fondness for. It doesn't hurt that what Disney is trying to sell to the public is massed entertainment or dreams and fantasy, and Iger has always been a creative sort who socializes with other creative sorts. Chapek, by his own admission, is not.
The Here & Now
There is much that needs repairing. This includes the firm's place in the community, the relationship between management and labor, the relationship between the firm and its customers and the relationship between the firm and its investors to include its activist investors. All while facing the need to improve business performance without further damaging all of the this that makes up the Disney ecosystem. I imagine the first bases touched will be to connect with both Trian and Third Point.
For those reasons, you can bet that the needle will move. One way or another. Can the firm actually do this, as in continue to evolve and still return itself to glory? It has to. Some things, like returning the balance sheet to a position of greater strength will take time and stay under the radar. Others will be noticeable and make headlines. That's when the stock will move.
Wall Street
On Monday morning, Morgan Stanley's five star rated (by TipRanks) analyst Benjamin Swinburne reiterated his "buy" rating with a $125 target price as four star rated (also at TipRanks) analyst Barton Crockett of Rosenblatt Securities maintained his "Buy" rating on DIS while not setting a target price. Three star rated Kutgun Maral of RBC Capital reiterated his "Buy" rating and $130 target price as well.
Beyond those three, the one-star rated Steven Cahill of Wells Fargo rated the shares as a "buy" with a $125 target price as Laura Martin of Needham, who is not highly rated at TipRanks placed a "hold" on the shares.
In addition, MoffettNathanson, without putting a human name on the rating, upgraded DIS from "Market Perform" to "Outperform" while installing a $120 target price.
Trading the Mouse
It is not lost on me that the stock is a bit expensive at 22 times forward looking earnings. Still, I went long these shares as soon as I could this morning, after allowing for Market Recon to be published. It is also not lost on me that my track record on DIS is not all that great. That said, my track record on the name was a lot better with Iger at the helm.
I do believe that Iger can return cash flow from operations and free cash flow to growth. If not during the current quarter than hopefully the next. Let's hope that we have heard the last of those silly "next 100 years" comments when the firm has poor numbers to report.
I believe Iger will get down to brass tacks as soon as possible. He knows he wasn't brought in to do a victory lap. The business will be more refined in terms of maximizing success at the parks in order to feed the growth of direct to consumer entertainment , while reducing expenses where there is fat to cut.
As for ESPN, and/or the future independence of that business or any tie-ins to online gambling, I can not guess. As for the purchase of the portion of Hulu (25%) that is not owned by Disney, I believe that actually happens and leads to a more focused, less chaotic streaming business.
The stock from the peak in March of 2021 through Chapek's bottom earlier this month requires a run up to $131 to complete a 38.2% Fibonacci retracement of the entire move. Relative strength has obviously been weak. The daily MACD has been in a poor place.
Zooming in a bit, we see that the upper trendline of our Regression model runs just below the 200 day SMA. This will provide for second level catalyst or resistance after the shares either take and hold or fail at the 50 day SMA this day. Should DIS hold the 50 day line, this will provoke an increased level of exposure across Wall Street. A failure would make investing in the name all that much harder and probably return at least some of us to trading the name rather than holding on.
For Now...
- Primary Target Price: $114 (200 day SMA)
- Secondary Target Price: $131
- Pivot 1: $100 (50 day SMA)
- Pivot 2: $114 (200 day SMA)
- Add: Below $100.
- Panic: $95 (break below 21 day EMA)
Optional... Selling December 16th DIS $95 puts for $2 or greater might be an idea.
