Topline
Shares of Disney surged Thursday after the company posted stronger profits than expected, and analysts say the company’s strong quarterly results may ease mounting pressure on the entertainment giant to significantly change its business.
Key Facts
Disney stock gained more than 6% to above $90 shortly after Thursday’s market open, hitting its highest share price since August and posting its strongest daily gain since last November.
The boost follows the firm’s Wednesday afternoon earnings report which saw profits come in higher than anticipated, and included confirmation from Disney brass that the company will pay out dividends for the first time since 2019 by year’s end.
Disney’s rally comes amid a lengthy down period for the stock, which included calls for the company to drastically alter its business model, such as possibly exploring a sale of its majority-owned ESPN unit and facing an ongoing challenge from billionaire activist investor Nelson Peltz, who holds a roughly 1% stake in Disney and has lobbied extensively for Disney to rein in costs.
But “if Disney can keep executing like this, the push to breakup the company will likely not have much traction,” Rosenblatt analyst Barton Crockett wrote in a Thursday note.
In a similar vein, Bernstein analyst Laurent Yoon speculated Disney’s significantly increased cost-cutting guidance could cause Peltz’s investment firm Trian Asset Management to “step aside once again,” nodding to Peltz’s briefly-lived proxy battle from January to February which reports suggest could soon reignite.
Crucial Quote
“You can’t cut your way to growth,” Bank of America analyst Jessica Reif Ehrlich told CNBC on Thursday, attributing much of Disney stock’s post-earnings bump to optimism about increased cost-cutting. “At this point, the focus has to be on growth” for Disney, continued Reif Ehrlich, noting Disney isn’t “immune” to legacy entertainment’s secular decline but its growth narrative is “getting better.”
Key Background
Disney shares are up 3% over the past 12 months, underperforming the S&P 500’s 17% gain, and the media leader’s stock is down more than 50% from its all-time high achieved in March 2021. Bob Iger, who first served as Disney’s CEO from 2005 to 2020, returned to his post as Disney’s boss last November to right the ship, with among his primary initiatives to focus streaming efforts on profitability rather than subscriber growth. Iger has maintained he intends for Disney to hold a majority stake in ESPN. Reports have posited that sports leagues could potentially emerge as buyers of the minority equity stakes.
Big Number
About $24 billion. That’s ESPN’s implied enterprise value, according to a recent Bank of America analysis based on ESPN’s projected earnings in the upcoming fiscal year. Disney’s total enterprise value, inclusive of ESPN, is about $180 billion.
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