4. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 112
The Walt Disney Company (NYSE:DIS) operates as an entertainment company worldwide. On December 28, Walt Disney announced that its Avatar: The Way of Water has crossed the $1 billion milestone at the global box office. That figure came after just 14 days of release, making it the sixth film ever to hit that worldwide mark in two weeks.
On December 12, Morgan Stanley analyst Benjamin Swinburne maintained an Overweight rating on The Walt Disney Company (NYSE:DIS) stock and lowered the price target to $115 from $125, highlighting that the estimates are lowered to reflect revised FY23 guidance which are achievable even with current macro environment and linear pressures.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in The Walt Disney Company (NYSE:DIS) with 9 million shares worth more than $862.5 million.
In its Q3 2022 investor letter, Third Point, an asset management firm, highlighted a few stocks and The Walt Disney Company (NYSE:DIS) was one of them. Here is what the fund said:
“As disclosed in our Q2 letter, we reinitiated a significant position in The Walt Disney Company (NYSE:DIS) when the company retested its Covid lows earlier this year. At the current price, Disney is trading for little more than the stand-alone value of its Parks business and a mere 15x ’24 “street” consensus. The company remains early in its Direct to Consumer (“DTC”) transition with a leading market position, and yet the current stock price ascribes negligible value to the streaming business. We believe this is due to questions around the terminal economics of streaming, given the large losses being generated today at Disney (> 1 billion dollars last quarter) and stagnating margins at peers such as Netflix. On the last earnings call, management highlighted three items that could lead to an inflection in DTC profitability over the next 12 months: a 38% price increase for Disney+ in the US; moderating growth in cash content expense; and an advertising tier for Disney+ launching in two months that can drive additional ARPU given the high demand for the Disney brand amongst advertisers.
While the company has guided to Disney+ achieve breakeven sometime within the fiscal year ending September 2024, the valuation suggests the market remains sceptical. Disney only trades at ~14x the $7 in earnings generated before the Fox acquisition, which implies investors don’t expect earnings to meaningfully exceed this figure in the coming years. Hence, the first value driver we highlighted in our last letter is the opportunity for management to optimize Disney’s cost base to drive earnings growth. We believe Disney has ample means to rationalize costs across its operating platform and deliver targeted content for home viewing that does not entail the same cost structure of exclusive theatrical releases… read more
