Disney Stock Surges 6% in 2023’s Largest Gain on Strong Earnings
Disney’s 6% Stock Surge in 2023: Strong Earnings Fuel Record Gain
Disney‘s shares experienced a remarkable surge on Thursday, as the entertainment giant posted stronger-than-expected profits in its quarterly earnings report. This boost in stock performance came as a welcome relief to Disney, which had been under mounting pressure to reevaluate its business strategies. In the wake of these positive results, analysts are now suggesting that Disney’s robust quarterly performance may alleviate the need for significant business model changes.
On Thursday, Disney’s stock price soared by more than 6%, surpassing the $90 mark. This marked a significant milestone, with the share price reaching its highest level since August, and it also represented the strongest daily gain since the previous November. The catalyst for this surge was the company’s Wednesday afternoon earnings report, which not only exceeded profit expectations but also included an announcement from Disney’s leadership that the company would be paying dividends for the first time since 2019 by the end of the year.
This rally for Disney’s stock is a ray of hope following a prolonged period of underperformance, during which calls for drastic changes in the company’s business model were growing louder. One proposed change included the exploration of selling the majority-owned ESPN unit. Disney was also facing pressure from billionaire activist investor Nelson Peltz, who holds a roughly 1% stake in the company and has been advocating for cost reductions.
However, the recent positive developments have cast a shadow of doubt over these calls for drastic changes. Barton Crockett, an analyst at Rosenblatt, noted that “if Disney can keep executing like this, the push to break up the company will likely not have much traction.” In a similar vein, Laurent Yoon, an analyst at Bernstein, speculated that Disney’s significantly increased cost-cutting guidance could prompt Peltz’s investment firm, Trian Asset Management, to “step aside once again.” This would be a marked change from Peltz’s earlier proxy battle, which was short-lived but might be poised for a revival.
Despite the optimism generated by the cost-cutting efforts, Jessica Reif Ehrlich, an analyst at Bank of America, emphasized the importance of focusing on growth rather than just cost-cutting. She stated, “You can’t cut your way to growth,” highlighting that Disney’s future should prioritize growth given the challenges faced by legacy entertainment. While Disney is not “immune” to the secular decline in the industry, its growth narrative is showing signs of improvement.
Over the past 12 months, Disney’s shares have increased by 3%, underperforming the S&P 500, which has seen a 17% gain during the same period. In contrast, Disney’s stock price has dropped by more than 50% from its all-time high achieved in March 2021. This decline prompted the return of Bob Iger, who initially served as Disney’s CEO from 2005 to 2020, to reassume his position as Disney’s leader in November of the previous year. Iger’s primary mission was to steer Disney in the right direction, focusing the company’s streaming efforts on profitability rather than subscriber growth. Additionally, Iger has consistently expressed his intent for Disney to maintain a majority stake in ESPN, although reports have suggested that sports leagues might emerge as potential buyers of minority equity stakes.
Disney’s earnings report and subsequent stock performance raise questions about the value of its assets, particularly ESPN. According to a recent analysis by Bank of America, ESPN’s implied enterprise value is approximately $24 billion, based on the projected earnings for the upcoming fiscal year. When factoring in ESPN, Disney’s total enterprise value stands at around $180 billion.
In conclusion, Disney’s recent surge in stock price, driven by better-than-expected earnings, has provided a respite from the mounting pressure on the entertainment giant to overhaul its business model. Analysts are now suggesting that Disney’s renewed focus on profitability and cost-cutting, along with its commitment to growth, may help the company regain its footing in a challenging and ever-evolving industry. While Disney’s stock has struggled in the past, these positive developments could mark the beginning of a more promising chapter for the iconic media leader.
By: M Z Hossain, Editor Sky Buzz Feed
