Disney shares slid into red numbers Thursday after jumping 5% earlier in the day on the news that activist investor Nelson Peltz has ended his proxy fight with the company.
The stock finished at $110.22 on more than triple its normal trading volume. Disney shares have nevertheless risen 24% in 2023 to date, reflecting continued optimism about the company’s prospects under Bob Iger, who returned as CEO last November.
Wall Street analysts applauded the financial progress Disney reported in its quarterly earnings release Wednesday and a news-filled earnings call. Along with the affirmations, though, many analysts have continued to digest the flurry of news, debating the fate of ESPN and Hulu and posing questions they feel Iger & Co. must soon address.
“While we are encouraged by Bob Iger’s strategic vision for Disney, this is clearly the first phase in Disney’s transformation, which will require adept execution,” wrote BofA Securities analyst Jessica Reif Ehrlich in a note to clients. Along with reiterating her “buy” rating on the company’s shares, she boosted her 12-month price target to $135 from $115.
Michael Nathanson of SVB MoffettNathanson, who upgraded the stock to “outperform” upon Iger’s return, also upped his price target (from $120 to $130). In a research note, he wrote that the market should “greater confidence in the company’s trajectory” under Iger. As far as Wednesday’s call, he said it was “refreshing” for Iger to “acknowledge that the company had chased subscriber growth at all costs and needed to show much greater discipline about pricing strategies, local market entrances and content investment.”
Many analysts observed that the future of Hulu did not come up on the call, either in execs’ prepared remarks or during the Q&A period. From Iger’s general commentary, though, many of those listening heard more of an indication than ever that the company could be willing to sell Hulu rather than shelling out tens of billions for Comcast’s one-third financial stake. “Disney’s views on Hulu and its strategic value to Disney sound less certain,” observed Morgan Stanley’s Benjamin Swinburne. Iger himself put a finer point on it Thursday morning in an interview with CNBC, saying the company would be “open-minded” about the idea of unloading Hulu, which remains a U.S.-only service in a global sector.
Tim Nollen of Macquarie is another bull, who wrote in a note that Iger’s return as CEO “looks impressive already. He presented a clear focus on the urgency in turning Disney’s streaming business into profitability and in turn, addressing the company-wide earnings profile.” Joining the conga line was Michael Morris of Guggenheim, who maintains a “buy” rating but jacked up his price target to $140 from $115 based on Wednesday’s information. He pronounced himself “more confident that the new structure and disciplined approach can drive more sustainable future margin expansion at the segment currently known as Disney Media and Entertainment Distribution.
Speaking of the DMED realignment, the decision to position ESPN as its own corporate division is not a pretext to a spinoff or sale, the company has insisted. But that stance didn’t stop analysts from wondering if a minority stake sale could be an option as the company navigates out of the financial muck. “We wonder if they will sell a 10%-15% interest in ESPN,” wrote Needham & Co.’s Laura Martin.
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