There has been some pep in the step of Walt Disney (DIS -0.04%) shareholders since Bob Iger resumed his role as CEO. Disney stock is up 10% since his return to the helm was announced in mid-November, doubling the market's 5% gain in that time.
There are still a lot of steps forward to take for Disney. The shares are trading for half as much as they were when the House of Mouse peaked just north of $200 in early 2021. That was a different time, of course. Wall Street was mesmerized by the meteoric rise of Disney+ and the potential of Disney as a post-pandemic reopening play.
The narrative has changed since then, but can investors still live happily ever after? Let's go over why now could be a good time to buy shares.
We don't talk about Chapek
There were still questions left unanswered when the stock was at its all-time high in March of 2021. Disney had posted four consecutive quarters of double-digit declines in revenue. Theatrical distribution of its popular content wasn't gaining traction. Travel restrictions were still in place, and even the original Disneyland theme park in California wasn't open. A year into his stint as CEO, there were rumblings about the effectiveness of Bob Chapek at the top.
The stock has been cut in half, but the questions have been satisfactorily answered. Disney's studio division has two of the top three highest grossing movies for the second year in a row. Disneyland is open, and the company's domestic theme parks are cranking out record results. Chapek has been replaced by Iger, and the market is generally pleased to see the Bob swap.
Image source: Disney.
At the stock's 2021 high, there was more helium in Disney's valuation than what's tethered to the strings of a Mickey balloon seller on Main Street U.S.A. The upticks were based more on the potential of subscriber growth at Disney+ than the billions that the streaming segment would be delivering annually in operating losses.
Disney is far more attractively priced now. The stock is trading at 24 times this fiscal year's projected earnings and less than 19 times next year's target. Iger is cutting costs without hacking away at morale. He is committed to turning Disney+ profitable by the end of next year. Even the dividend -- suspended for more than three years -- is coming back later this year.
Despite earmarking $5.5 billion in annual savings, Iger has Disney in good shape for the near term. The content pipeline is rich, and its theme parks have been reinvigorated with major ride additions earlier this year.
The outlook is more muddled as we look out to Disney's media networks and the rising programming costs at ESPN, but there are encouraging signs that the advertising market is starting to recover in 2023.
Investors can fret about Disney's succession strategy. What will happen after Iger leaves next year? It's fair to say that he will be more concerned about cementing his legacy this time around, making sure that the media stock behemoth won't need to call him out of retirement a second time. A global recession or heightening of the culture war can always trip up the recovery. Every step in a rebound isn't always forward.
But it's easy to see Disney continuing to beat the market with Iger striking the right balance of pleasing diehard Disney fans as well as his own bean counters. Disney stock is a compelling buy right now.
