Analysts seem to believe shares of Walt Disney (DIS) are heading higher after the company defeated billionaire Nelson Peltz’s bid to join the board.
The stock, however, closed down more than 3.1% to $118.98, perhaps a reflection of shareholders who didn’t buy the company’s strategy.
The Disney decline subtracted 25 points from the Dow Jones Industrial Average, contributing to the Index closing down 43 points or 0.1% to 39,149.
At the company’s annual meeting (held virtually) on April 3, Disney officials announced that all its nominated directors were re-elected to one-year terms. However, Peltz, a stock activist who had been critical of Disney, won 31% of the vote, a higher-than-expected total.
Before and after the meeting, analysts were looking at a $140-to-$145 price target for Disney’s stock over the next 12 months. That would be a gain of 18%-to-22% off Wednesday’s close.
Nelson Peltz, left, with Elon Musk and Peltz’s children Nicola Peltz Beckham and Will Peltz at a Los Angeles movie premier. Peltz, an activist investor, had his eyes set on Disney.
Axelle/Bauer-Griffin/Getty Images
Why activist shareholders took aim at Disney
Peltz’s Trian Partners went after the Mouse House after Disney shares slumped badly after peaking at $201.91 in March 2021.
The slide came as the S&P 500 was up 27% for 2021. Things didn’t improve for Disney in 2022. But the fault may not have been the company’s: The S&P 500 fell more than 19% on growing inflation fears.
Related: Disney gives new theme-park life to its biggest ‘Star Wars’ failure
Peltz bought into the stock in early 2023, believing the shares were undervalued and that the company was lazy and badly managed. His first attempts to join Disney’s board were rebuffed, but Disney agreed to big cost cuts, restructuring, and 7,000 layoffs.
In December 2023, Peltz launched a second proxy fight, arguing the same, and Disney shares resumed their fall. In this fight, he nominated himself and James Rasulo, Disney’s former chief financial officer, to replace Michael Froman and Maria Elena Lagomasino on Disney’s board.
He had considerable support from pension funds and others, including Elon Musk, the CEO of Tesla (TSLA) .
Peltz took that fight to Wednesday’s annual meeting, but he was hit by bad luck.
The stock bottomed in at $79.32 on Oct. 4, 2023. Then, it soared, reaching $122.36 at the end of March. That was a 54% gain from October. Disney jumped 35.5% in the first quarter and was the Dow’s top-performing stock.
What Disney needs to do to make shareholders happy
While there is bullishness among analysts about the stock, there are conditions attached to the recommendations. Plus this: It is still 41% below its 2021 peak.
The company knows the risks.
More on Disney
Disney settlement with Florida removes overhang, says DaiwaDisney gives new theme-park life to its biggest ‘Star Wars’ failureAnalysts adjust Disney stock price targets ahead of proxy fight
As Rosenblatt analyst Barton Crockett noted this week the company’s aggressive tactics in the fight with Peltz suggested “a degree of nervousness.” He still rates the stock a buy and boosted his target prices to $137 from $129.
The conditions many want Disney to abide by include, as Needham analyst Laura Martin put it on CNBC:
Making better movies that attract stronger audiences. It has some strong franchises, and two films — Guardians of the Galaxy, Volume 3, and a live-action version of The Little Mermaid — were among the stronger films of 2023, but nowhere near Warner Brothers’ Barbie.Fix the losses in the company’s streaming business.Fix operational deficiencies and pricing at the company’s theme parks. Martin said attendance is not as strong as usual at Orlando’s Walt Disney World. Some weakness may be due to the ongoing battles between Disney and Florida Gov. Ron DeSantis. But many would-be visitors are balking at higher prices. Keep cutting costs overall.
Making Disney content revert to that of the company of old may make DeSantis and conservative critics happy, but Iger pointedly said Wednesday the company believes in great entertainment and great entertainment should include diversity and inclusion.
Martin has a buy rating on the stock with a $145 target. Other analysts, including Bank of America’s Jessica Reif Erlich, boosted their targets this week to $140 to $145.
Unsaid in the discussion was a smart succession plan for CEO Bob Iger, who returned as CEO in 2022 after the ouster of Bob Chapek.
What many investors want is a clear process to identify a CEO when Iger leaves again. Iger was CEO from 2005 to 2020 when he picked Chapek to succeed him. Iger left the company at the end of 2021 but returned as CEO in 2022 when Chapek lost confidence among investors, senior management, and workers.
Iger said he would stay for two years, but that term has been extended
He has appointed a group to identify his successor.
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