It's not easy to be bullish on Walt Disney (DIS -0.04%) these days. Its flagship media networks segment is struggling. Negotiations between studios and the Screen Actors Guild reportedly broke down on Wednesday, fueling fears of a prolonged drought of fresh content for Disney's already languishing slate of TV shows and theatrical releases. Geopolitical and economic unrest threaten to cool down its previously resilient theme park business.
The pessimism is so thick you can cut it with the same knife that carved a nine-year low in the stock just last week. However, with the stock moving 8% higher since hitting what may be rock bottom five trading days ago, is it wrong to suggest that it's a good time to be a contrarian when it comes to the House of Mouse? It's been more than five months since Disney shares last traded in the triple digits. Let's go over a few reasons it may get back up to over $100 before the end of this year.
1. The barbell approach should work
It's been a week of hikes at Disney, and not just because this is football season for the ESPN parent. The media giant officially raised prices for its premium streaming services on Thursday. Monthly rates for ESPN+ and ad-free versions of Hulu and Disney+ are now 10%, 20%, and 27% higher, respectively.
This follows an increase of as much as 38% near the end of last year. A day earlier, it jacked up the prices for many of its Disney World and Disneyland admissions. Even your car will have to pay more to enjoy a day in the Disney parking lot on either coast.
Lost in the pricing-gun crossfire, Disney is holding firm to its lowest price points. If you don't want to or can't pay $13.99 a month for Disney+, now you can still get the ad-supported version at its unchanged monthly rate of $7.99. The cheapest single-day ticket for Disney World or Disneyland also remains unchanged.
Taking this barbell approach to pricing gives Disney more money from customers willing to pay a premium, without alienating its cash-strapped fan base. It should help deliver strong top-line gains in the new quarter and even better bottom-line growth.
Image source: Disney.
2. An activist can speed up growth catalysts
Trian Fund Management's Nelson Peltz is rattling the mouse cage again, prepping for a potential proxy battle at Disney's annual shareholder meeting in March. It's a distraction for CEO Bob Iger and the boardroom and could be a turnaround catalyst for the stock itself.
Peltz did the same thing before the last shareholder meeting. He backed down after Iger vowed to shave $5.5 billion in annual overhead and put an end to the red ink at Disney+. What does Peltz -- now as a larger shareholder -- want to see happen?
Unlocking shareholder value isn't a secret recipe. Disney can sell fading non-core assets before those dimmer switches go out. It's not dumping ESPN, but it can ease up on its majority stake in the sports juggernaut by striking cost-cutting partnerships with pro leagues and other partners.
The proxy battle can't start until Peltz can submit board member nominations in December. Disney is going to shake up some of its assets, but now it knows the clock is ticking. It may be a terrible time to sell out-of-favor businesses, but the extraction process itself should provide near-term relief for its stakeholders.
3. Even a small dividend is a dividend
It's been almost four years since Disney declared its last cash distribution. The payouts are coming back. Disney announced it will resume its dividends before the end of the 2023 calendar year in February. Iger reiterated that goal two months ago. It would be a shock if the initial distribution isn't announced around the time of next month's fiscal fourth-quarter earnings report.
The payout itself will be small. It's never been a high-yielding stock, and between cost cuts and Peltz's foot stomping, it's not the right time to be too generous. However, just the token pocket change will be enough to put the iconic media stock back on the radar of income-generating funds and investors. Big things can come even from small dividend declarations.
