4. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 109
P/E Ratio as of November 3: 58.12
The Walt Disney Company (NYSE:DIS) is another stock backed by smart investors for a growth stock portfolio. At the end of September, the American entertainment conglomerate entered into a support agreement with activist investor Daniel Loeb and his firm Third Point, and will also add Facebook veteran Carolyn Everson to its board with Loeb’s help.
KeyBanc analyst Brandon Nispel on October 26 maintained an Overweight rating on The Walt Disney Company (NYSE:DIS) but lowered the price target on the shares to $143 from $154. The analyst noted that Disney’s conventional Media business is exposed to harsh macro trends, but the company’s focus on sports positions it favorably. The Walt Disney Company (NYSE:DIS)’s streaming services allow for the transition of subscribers from linear to streaming that is difficult for others to replicate and Disney parks are resilient and offer meaningful cash to help finance the transition to streaming, added the analyst.
According to the second quarter database of Insider Monkey, Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the one of the largest position holders in The Walt Disney Company (NYSE:DIS), with 3.8 million shares worth $366.3 million.
Here is what Third Point specifically said about The Walt Disney Company (NYSE:DIS) in its Q3 2022 investor letter:
“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 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 high demand for the Disney brand amongst advertisers.
While the company has guided Disney+ achieving breakeven sometime within the fiscal year ending September 2024, the valuation suggests the market remains skeptical. Disney only trades at ~14x the $7 in earnings generated prior to 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…” (Click here to view the full text)
