Walt Disney
stock dipped on Wednesday after an analyst at Needham said sentiment among clients has been noticeably more negative in the past several weeks, especially after the firm said its finance chief was leaving.
Disney
stock (ticker: DIS) was down 1.1% to $88.76 in Wednesday trading. The stock is up 2.2% year to date and down 5.1% over the past 12 months, underperforming the S&P 500 by a large margin. Needham analyst Laura Martin, who has a Hold rating with no price target, wrote Wednesday that investors are worried about the firm’s strategy, leadership, and a lack of potential upside catalysts.
Disney did not return a request for comment on Martin’s note.
“Over the past several weeks, the tone of incoming calls about DIS has shifted distinctly negative, and sentiment has further deteriorated since CFO Christine McCarthy left last week,” Martin wrote.
While the firm’s move to cut 7,000 jobs will drive improved free cash flow in the near term, investor hopes for a return to growth are complicated by the linear TV business’ deterioration.
“Many investors are wary about buying DIS before they understand its growth plan,” Martin adds.
She notes CEO Bob Iger, who took back the reins after his successor Bob Chapek was fired in November, is working on a contract that ends on Dec. 31, 2024. Aside from finding his successor, the firm must also pick a permanent replacement for McCarthy.
As for other media companies, Martin notes that the takeout potential for
Warner
Bros. Discovery (WBD) and
Paramount Global
(PARA) gives those stocks more potential catalysts than Disney currently has.
“Cyclically, at this point in the investment cycle we, and many investors, prefer 100% ad-driven names,” Martin added. “Structurally, many investors prefer big tech or companies that clearly benefit from generative AI trends. DIS’s linear TV business is shrinking, and its streaming business isn’t making money. Many investors wonder which shareholders will buy DIS from them in 1-2 years, if they buy DIS at current price levels.”
Still, she does see some green shoots for Disney. She thinks the Hollywood writers strike that began on May 2, while disrupting projects, will paradoxically result in better-than-expected free cash flow for the June and September quarters. She also thinks Disney could prove an attractive acquisition target for a large tech firm.
“We believe that consumer-facing companies must compete for attention,” she wrote. “There is nothing that generates longer attention spans than compelling storytelling.”
She argues
Apple
(AAPL), for example, generates $90 billion in free cash flow a year, but has “no meaningful content assets.” Apple didn’t immediately return a request for comment.
“DIS has 4 teams (Marvel, Star Wars, Princesses, Pixar) of world-class storytellers and best-in-class film and TV franchises protected by IP,” Martin adds.
Write to Connor Smith at [email protected]
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