Walt Disney has been in the news a lot this year, and it has not all been good. In fact, the stock has had a rocky ride the past few years. The share price hit a 52-week low of $78 per share earlier this month and has not been that low since 2014.
Inflation, politics, some box office bombs, a writers’ strike, some iffy acquisitions and business challenges related to the changing television-viewing landscape, among other factors, have all played a role. However, the company faced another challenge this week — one that has been favored by investors, at least initially. It involves a challenge from activist investor Nelson Peltz.
Activist investor seeks board seats
Through his firm Trian Fund Management, Peltz is one of the largest investors in Disney. The hedge fund recently boosted its stake in Disney to some 30 million shares, worth about $2.5 billion, according to the The Wall Street Journal, which cited people familiar with the company. It has since been reported by multiple media outlets.
Citing the unnamed source, the Journal reported that Peltz was seeking multiple seats on the Disney board, including one for himself, in an effort to exert more influence over the direction of the struggling company.
He had initially launched a proxy fight against Disney in January, seeking several changes in addition to seats on the board. At that time, he owned about 9.4 million shares. Peltz eventually dropped his proxy battle after he was satisfied that some of his requested changes were being addressed by CEO Bob Iger and the Disney “brain trust.” Among the demands, Peltz sought cost cuts and streamlining, improvements to the streaming business, a reinstated dividend, which was suspended after the pandemic, and a succession plan, among other things.
However, the stock has continued to drop since then, no doubt prompting this latest fight, although neither Disney nor Peltz has officially commented on the media reports.
What does this mean for Disney stock?
The report about Peltz’s latest involvement originally surfaced Sunday night, and Disney stock has risen almost 3% since the market opened on Monday, reaching just over $85 per share. It indicates that investors are somewhat bullish on the latest push to refocus the company.
The board nominations don’t open until Dec. 5, so the fact that this story leaked gives Iger and the company time to make some additional moves to satisfy investors. He has certainly been busy.
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In recent months, Iger had said Disney was interested in forming a strategic partnership to bolster ESPN, and there were rumors the company was trying to sell off some of its TV stations and the ABC network. Disney threw shade at the latter rumor, releasing a statement to that effect.
“While we are open to considering a variety of strategic options for our linear businesses, at this time, The Walt Disney Company has made no decision with respect to the divestiture of ABC or any other property, and any report to that effect is unfounded,” the Sept. 14 statement said.
In addition, Disney slashed expenses by $5.5 billion earlier this year and has been looking to invest some $60 billion in its theme parks and cruise lines over the next decade.
Disney’s Parks, Experiences and Products division has continued to perform well and has been carrying the load while the company figures out how to maximize its Media and Entertainment Distribution arm, which includes its streaming services and linear networks. This new, rumored proxy battle may be another catalyst for change over the next few months.
Disney will release its fiscal fourth quarter and full-year results on Nov. 8, so we may know more as that date approaches.
Right now, Disney looks overpriced, with a trailing price-to-earnings (P/E) ratio of 68, but its forward P/E ratio is a more reasonable 16. The company’s five-year P/E-to-growth (PEG) ratio of 0.96 indicates that the stock is undervalued compared to its long-term earnings potential. Ultimately, this potential proxy battle is not a bad thing for Disney, although investors should certainly keep a close eye on the company, as there appears to be many changes afoot.
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