Has Disney Stock Finished Its Growth Phase?
As a battle brews at The Walt Disney Company, its stock has soared.
A previously stagnant valuation has gained newfound momentum, causing some investors to debate sustainability.
Has Disney stock finished its growth phase? Let’s see what the experts are saying.
What Has Happened with Disney’s Stock Price?
At the start of 2024, Disney stock was valued at $90.20.
Remarkably, that number reflected sizable growth. At two points in October, the stock briefly fell under $80.
This plummet in stock value started in early September and continued throughout the fall.
Not coincidentally, activist investor Nelson Peltz restarted his previously failed campaign to claim a spot on Disney’s Board of Directors.
Peltz had actually sold 500,000 shares of Disney stock as a form of profit-taking after his previous bid in early 2023.
However, Peltz’s friend, Isaac Perlmutter, the former owner of Marvel Entertainment, offered some help.
Perlmutter, at one point, claimed the title of owning the most Disney shares of any single person, even over Disney family members.
Together, the two of them control 33 million shares of Disney, which still isn’t a lot, all things considered.
Overall, there are more than 1.8 billion shares outstanding, but Peltz’s presence matters greatly in this conversation.
The billionaire seeks two spots on Disney’s Board. Should he get them, he would hold outsized influence over Disney’s future.
Well, that’s theoretically true. I doubt Disney CEO Bob Iger would listen to anything Peltz says, but you get the point.
Peltz’s frustration over the languishing stock price led to round two of his push to join Disney’s Board.
Why Has Disney’s Stock Price Increased?
Coincidentally or not, something interesting happened around that time.
Peltz announced his intention in early October when the stock was hanging around $80.
Since then, the stock has increased to $112.31, which is growth of more than 40 percent in roughly 150 days. That’s…impressive.
More remarkably, in 2024 alone, the stock has increased 33 percent in about 70 days.
Fund managers aim for annual growth of about 11.5 percent.
Since Peltz picked his fight, Disney stock has increased more in five months than many investments managed in a year.
Perhaps most impressive is the fact that this happened after a tumultuous year of struggles.
When Iger returned, he faced myriad challenges, most notably stopping the bleeding with Direct-to-Consumer (DTC), the streaming division.
Investors weren’t willing to turn a blind eye to the loss leader in Disney’s foray into streaming.
Until DTC looked profitable, Disney stock wasn’t going anywhere.
Not coincidentally, Iger’s laser focus on digital cost-cutting has made an impact on the balance sheet.
Under Iger’s guidance, DTC has reduced its losses from $1.4 billion per quarter to $216 million in the most recent quarter.
Disney has indicated that DTC will turn a profit by the end of fiscal 2024, which is in late September.
However, Peltz doesn’t believe that Disney’s fortunes have risen based on Iger’s actions.
Instead, the billionaire maintains that Disney stock has risen due to the shareholder battle unfolding before us.
To vote in the Peltz/Disney feud, people must own shares of the company.
The Board seat battle may have caused deep-pocketed investors to buy the stock.
Of course, Iger would argue that there’s a different reason for the growth. And he just gained a key ally in this debate.
MoffettNathanson Agrees with Iger
As John Ballard of The Motley Fool notes, MoffettNathanson has evaluated the situation and picked a side.
No, the vaunted investment group didn’t specifically argue in favor of Iger or Peltz.
Instead, the equity research group reevaluated Disney’s valuation and determined that the current price is low.
As an entity, MoffettNathanson performs such analysis regularly.
Over the past four years, luminaries like Michael Nathanson have argued that Disney was “overweight,” an industry term for a good value.
However, that statement reflects a moving target since stock prices fluctuate.
In late 2023, Nathanson cut his target price for Disney stock from $120 to $115.
At the time, that projection hinted at a tantalizing growth proposition for the stock.
What nobody could have expected was that Disney would reach that level by February.
That’s precisely what happened after Disney’s earnings report and the blockbuster announcements like the Epic Games deal.
MoffettNathanson watched their projected Disney growth occur in less than three months.
So, you might expect them to advise clients to take a profit right now. But no!
Nathanson previously his Disney forecast to $120 after previous growth. Now, he has once again raised the target to $125.
In other words, at this point, this particular equity research group views Disney as underpriced by roughly $12 or ten percent.
Yes, that number may be different, depending on when you read this, but Nathanson still perceives Disney has a buy.
Has Disney Stock Finished Its Growth Phase?
A different writer at The Motley Fool recently asked a question I found fascinating.
He debated the value of buying Disney stock between now and April 3rd in anticipation of growth due to the shareholder vote.
Effectively, the author wondered if the stock would increase even more over the next three weeks due to the struggle.
Ultimately, the author suggests that it’s too risky a proposition, and I agree.
However, that’s the kind of thought many investors are having about Disney at the moment.
How sustainable is the growth, and how illusory/valid is the recent stock surge?
Iger’s arguments were on full display during a Q&A session last week.
Disney’s CEO feels strongly that he has cut the requisite costs and made the necessary deals to secure his company’s future.
As much as anything, he sounds annoyed with Peltz and ready to put this nonsense behind him for the rest of his Disney tenure.
The quickest, simplest way to do that is by maintaining and improving Disney’s stock price.
Of course, the fly in the ointment is that Peltz might win the shareholder vote.
Iger has flatly stated that Peltz’s purpose is disruption rather than the growth of Disney as a company or stock.
So, that’s the “to be determined” in this entire conversation.
Overall, Disney’s bones look good on paper, at least to investors like a founding partner at MoffettNathanson.
Reconciliation: I pretty much never talk about Disney stock in terms of valuation.
Since I’ve skirted this topic this time, I should declare that I do own Disney stock, albeit less than ten shares.
If you believe that biases my opinion, that’s completely understandable, although I, like many of you, own stock due to fandom rather than any financial benefit.
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Feature Photo: Disney