It seems like all of the headlines involving Walt Disney (NYSE:DIS) lately are about politics. However, investors should focus on profits and Disney’s turnaround plan. Despite the company’s challenges, I am bullish on Disney stock for the remainder of 2023.
Disney is a famous provider of theme parks, films and television programming, streaming services, and more. However, Fiscal Q1 2023 certainly wasn’t a magical time for the House of Mouse, as Disney lost around 2.4 million Disney+ subscribers during that period.
Meanwhile, press reporters are busy chattering about Disney’s ongoing battle with Florida’s governor. As a clear-minded investor, however, it’s best to stick to the data, tune out the political noise, and consider the bullish implications of CEO Robert Iger’s restructuring plan for Disney.
Charlie Munger Issues a Warning about Disney
Before we delve into Disney’s data points, however, it’s worthwhile to address a statement issued by Berkshire Hathaway’s (NYSE:BRK.B) (NYSE:BRK.A) vice chairman Charlie Munger. He’s a longtime pal of Berkshire Hathaway CEO Warren Buffett and an investing legend in his own right. So, when Munger talks, people listen.
In a rare rant on a specific company, Munger took a decidedly cautionary tone on Disney. He started with, “Practically every business that Disney has, has gotten tougher than it used to be. Again, welcome to human life. Think about Disney — once owned the world.”
Fair point — I definitely recall a time when Disney could do no wrong. Munger continued, “Lion King was running a long run in the Theater District of New York. They went from triumph to triumph, marching, marching, marching. All of a sudden, practically every front, it’s more difficult.”
Indeed, the aforementioned statistic about the Disney+ subscriber loss supports Munger’s point. He also said, “How would you like running the sports, ESPN, now at Disney compared to its heyday? It’s going to be way harder for them.”
Munger’s 100% right, and I won’t try to argue against a 99-year-old value-investing icon. The days of easy victories are over for Disney, especially now that the company has so much competition in the streaming segment.
Bob Iger Has a Specific Plan for Disney
On the other hand, it’s entirely possible to hold shares of Disney stock if your expectations are reasonable. Don’t hope for jaw-dropping gains; instead, look for gradual growth as Disney’s CEO steers the ship back onto the right course.
Bear in mind, despite Munger’s duly-noted warning, Disney isn’t completely falling apart. The company posted an EPS beat for the first fiscal quarter of 2023, and Disney’s latest Ant-Man film sequel generated a healthy $100 million during its opening weekend.
Most importantly, however, Iger recently announced a program of transformative changes that should make Disney leaner and more competitive. Disney’s conference call stated, “Under our strategic reorganization, there will be three core business segments… Disney will comprise three business segments: Entertainment (which will include Disney’s streaming assets), ESPN, and Disney Parks, Experiences and Products” (theme parks, resorts, cruises, etc.).
The idea here is to make Disney run more efficiently. Iger’s reorganization plan will, the chief executive expects, “result in a more cost-effective, coordinated, and streamlined approach” to Disney’s operations.
Speaking of cost-effectiveness, Iger plans to eliminate approximately 7,000 roles at Disney, thereby making the company part of the ever-growing “2023 Corporate Layoff Club,” as I like to call it. Between the layoffs and other retrenchment measures, Iger identified a target of $5.5 billion in future cost savings for Disney.
Hopefully, these measures will help Disney move forward as a leaner and more focused business. If all goes according to plan, the company should demonstrate improvement in its Entertainment segment and even have Disney+ reach its goal of profitability by the end of Fiscal 2024.
Is Disney Stock a Buy, According to Analysts?
Turning to Wall Street, DIS stock is a Strong Buy based on 17 Buys and two Hold ratings. The average Disney stock price target is $128.18, implying 30.1% upside potential.
Conclusion: Should You Consider Disney Stock?
Investors shouldn’t just ignore Munger’s warning about Disney. The company, while still an entertainment giant, has a tough road ahead.
That said, it’s also possible to expect Disney+ to achieve profitability and, more broadly, to anticipate gradual improvement as Disney slims down and focuses on efficiency. So, you don’t have to be distracted by politically charged headlines, as Iger’s long-term strategy makes Disney stock worth considering now.
