Disney (NYSE:DIS) took yet another hit to the chin so far this week. Undoubtedly, Disney stock has looked like a great contrarian rebound play for over a year now. With shares sagging toward multi-year lows over new headwinds (Hollywood strikes and low crowds at Disney World), though, it’s hard to tell when the name will finally hit rock bottom.
Reportedly, CEO Bob Iger is extending his contract by another two years (he’s slated to serve through 2026). Investors don’t seem enthused in the slightest, likely because of Iger’s weak recent track record and growing successor woes.
Though Iger brings on a wealth of media experience, it’s clear that the man has had more than enough time to turn the tides around. In the streaming age, Disney seems to have really dropped the ball, and I do think a succession plan (not two more years of Iger) is what the stock needs to break out of its rut.
Personally, I can’t say I’m confident in Iger as he looks to reverse the trajectory of the stock. Then again, the stock faces considerable upside potential if Iger does find a way to turn the tides, and let’s not forget about the upside to be had once a suitable successor is found and ready to go.
With the price of admission at these depths, I’m enticed by the risk/reward and am maintaining my mildly bullish stance.
Disney Stock: More Headwinds Weighing Heavily
Just when you thought Disney couldn’t be more up against it, new risks were unearthed over the past few weeks. Unsurprisingly, actors are now on strike, adding even more salt to the wounds of media firms that are already in pain. Meanwhile, the Parks business doesn’t seem to be doing very well, with Disney World experiencing an unforeseen summertime slump.
Indeed, a Hollywood strike could lead to a big-budget content drought for some period. Also, with smaller crowds over at Disney World, it certainly seems like management overestimated its pricing power by a tad. Sure, the company has a good degree of pricing power. However, amid high inflation, with a recession potentially in the cards at some point over the next year, Disney certainly does not look immune to economic woes.
If the economy heats up again, theme parks could fill up in a hurry. For now, those who do punch their ticket to top theme parks like Disney World may be in for good value for money, with fewer line-ups at one’s favorite rides.
The negative theme park headlines seem scary as the stock slips into free-fall again. That said, I view the summer slump at Disney World as quite unsurprising, given the macro headwinds. As great as Disney’s brands are, it’s still an economy-sensitive consumer discretionary that will rise and fall based on how the consumer is faring at any given moment.
Currently, I view the Hollywood strikes and the Disney World slump as temporary issues that may have caused shares to be severely oversold and perhaps incredibly undervalued.
Disney Stock’s 55% Drop May Reignite Takeover Rumors
After a 55% decline from its peak, Disney stock looks historically cheap, with a 1.6 times price-to-book multiple, well below its 2.9 times five-year historical average. As shares continue to fall to multi-year lows, it’s not hard to imagine that a potential acquirer may step forward to help the company ease its numerous issues.
Needham analyst Laura Martin thinks Disney would be a fine fit for Apple (NASDAQ:AAPL) as it embarks on its journey into the Metaverse. Indeed, Iger’s appearance on the stage during the reveal of the Apple Vision Pro keynote was intriguing. Given the size of such a deal, though, I’m not so sure regulators will take to such a deal too kindly. Further, Apple is simply not known for gobbling up companies worth north of $150 billion.
In any case, such a deal would be historic and potentially a huge win for Apple and Disney fans.
Is DIS Stock a Buy, According to Analysts?
Turning to Wall Street, DIS stock comes in as a Moderate Buy. Out of 18 analyst ratings, there are 12 Buys, five Holds, and one Sell recommendation. The average Disney stock price target is $120.53, implying upside potential of 39.8%. Analyst price targets range from a low of $88.00 per share to a high of $147.00 per share.
The Bottom Line on Shares of Disney
Disney stock has many problems and not enough solutions. If Iger can’t find a successor, a potential sale to a behemoth like Apple makes the most sense for shareholders, in my opinion. In the meantime, despite the stock looking undervalued, it’s going to continue to be a California Screamin’-esque ride for shareholders.
