It's been more than eight months since Walt Disney (DIS +2.30%) last traded in the triple digits, but momentum is finally on its side. The stock that has lost to the S&P 500 (^GSPC +1.20%) for three consecutive years has more than doubled the market's return in January with a 6% return heading into this week.
This could be the time for the entertainment giant to end its run of trading exclusively in the double digits since early May of last year. It's just a 5% gain away from hitting $100 again. A strong fiscal first-quarter report and making progress in winning its upcoming proxy battle would go a long way to restoring investor support. Let's see why it could be time for an open house for the House of Mouse.
NYSE: DIS
Key Data Points
Earning its way back
Investors won't have to wait long for the first potential catalyst. Disney reports financials for the first quarter of fiscal 2024 next week, stepping up with results shortly after next Wednesday's close on Feb. 7.
Expectations are low, and on the surface uninspiring. Analysts are bracing for a 7% decline on both ends of the income statement. This follows an 8% increase in revenue for the same period a year earlier, so it's basically back to where the top line was two years ago. Adjusted earnings declined slightly in the fiscal first quarter last year, so another dip isn't a good look.
It's easy to see why revenue is likely to inch lower. Disney dominated the box office over the holidays in 2022 with Black Panther: Wakanda Forever and Avatar: The Way of Water. It failed financially this time around with November's theatrical debuts of The Marvels and Wish. Cord-cutting continues to weigh on its legacy media networks, and even Disney World in Florida has experienced weakness in turnstile clicks since spring of last year.
Things could work out better on the bottom line. CEO Bob Iger has been ramping up the annualized cost savings he believes the company can realize by the end of this year, including Disney+ and its fellow streaming services turning an overall profit by the end of the fiscal fourth quarter. Disney has also trounced Wall Street profit targets in back-to-back quarters, including a 17% beat last time out.
There may not be much of a beat on the top line. The market already knows how Disney struck out at the multiplex, but there's anecdotal evidence that Disney World did see more than just a seasonal uptick in activity over the holidays. The real blowout here would likely come from the bottom line, especially if Disney's direct-to-consumer streaming business takes another big jump on the path to eventual profitability.
Image source: Disney.
Storming the castle
Iger was able to hold off a proxy battle at last year's annual shareholder meeting, but he has a couple of activist parties to fight this time. A proxy battle isn't necessarily bad for investors, especially if it pushes the company into working harder to achieve financial objectives.
Disney's boardroom can also win. If it's able to post blowout profits next week, it would silence the criticism that it's not doing a good enough job of controlling its costs. Disney's global collection of theme parks should also come through again. You probably also shouldn't sleep on Disney+ raising prices for its premium ad-free formats in October, just in time to push top-line results and the platform's margin higher for the fiscal first quarter.
This is an important time for the media stock bellwether, and not just because activists are taking a battering ram to the castle. A lot of its fellow media companies are stumbling in transitioning from cable TV fixtures to premium streaming leaders. Disney seems to be getting it right on that front. It will need to start winning again at the box office, but it doesn't have a potential blockbuster in its arsenal until Memorial Day weekend. Thankfully, Disney doesn't need to be firing on all cylinders to get back above $100 again. A strong financial update with a convincing case for its near-term performance should be enough.
