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Walt Disney (DIS), the world’s largest entertainment company, fell to a 3-1/2 year low today as the company struggles to overcome numerous headwinds. Disney is facing (1) losses in its online video businesses, (2) the negative impact of the Hollywood actors and writers strikes, and (3) a fee dispute with Charter Communications, the second-largest U.S. cable company, that has cut off 14.7 million TV viewers from ESPN.
Disney CEO Iger, who returned as CEO for a second time last November after running the company for 15 years through February 2020, has launched a cost-cutting drive that included reduced spending and laying off 7,000 employees in an attempt to turn the company around. However, the stock has yet to recover due to a drop in subscribers to its Disney+ streaming service and the impact of the Hollywood strikes that have limited the release of new content.
Despite the fall in Disney’s stock price to a 3-1/2 year low, some analysts are still wary of buying the stock. Laffler Tengler said, “We don’t want to own it for the near term, and we don’t know that we want to own it for the long term.”
Since posting an all-time high in 2021, Disney stock has lost about $219 billion in market value and is down nearly -7% so far this year. It is priced at a below-average 17 times profits projected over the next 12 months. That’s down from a peak of 77 times in late 2020 when low interest rates and the pandemic boosted the company’s streaming businesses and sent the stock soaring. In comparison, Netflix (NFLX) has rallied +51% this year and trades at about 31 times forward earnings.
The longer the Hollywood actors and writers strike lingers, the more substantial the impact will be on Disney’s bottom line. On Tuesday, Warner Bros Discovery cut its full-year adjusted Ebitda forecast, saying the strikes will negatively impact its revenue by as much as $500 million. Due to the ongoing strikes, some wealth management firms are wary of owning Disney stock. Wealth management firm Gerber Kawasaki said the strike makes them “increasingly nervous” about its entertainment investments.
If Walt Disney decides to sell its ESPN network, it could give the company a much-needed boost. According to Keybanc Capital Markets, the ESPN sports network could be worth as much as $30 billion. Wedbush puts the potential price tag at more than $50 billion. Gerber Kawasaki said the sale of ESPN “would be a great move for Disney to monetize the asset because clearly, Disney broken up is worth more than Disney together right now.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
