The Walt Disney Co (NYSE:DIS) has been in the news a lot this week. From activist investor pushes to even Elon Musk’s tweets, the Disney share price has been volatile. Yet when I take a step back and think about what all this noise means for the long-term direction for the company, I’m actually thinking about buying the stock. Here’s why.
Recent volatility
Nelson Peltz, a famous activist investor, has a stake in Disney. He has been pushing for his fund to get two seats on Disney’s board of directors. This would have allowed him to push for more aggressive changes to the business. He feels this is needed in order to help the business grow.
One of the world’s richest men, Musk tweeted he’d invest in Disney if Peltz was appointed. I do have to take this with a pinch of salt, as Disney stopped advertising on his social media platform X. Musk has clashed with the current CEO, Bob Iger, so his claim to invest if Peltz had a seat at the table seems a bit of a personal vendetta.
Last night (3 April), the shareholders voted against his push to give him the seats. Rather, they favoured the turnaround plan of Bob Iger. This was laid out about a year ago, involving large scale cost-cutting in order to make the business more efficient and profitable.
Throughout the past couple of weeks, the share price has been very choppy, as investors tried to understand the impact of the vote outcome. I see Peltz as a key risk going forward, as I doubt that he’ll simply roll over. His plans are more radical than the current turnaround strategy, but I feel they go too far and would be a negative for the stock in the long run.
The plan’s working
The strategy to get Disney back to where it was years ago is starting to pay off.
For example, the cost-cutting is really ramping up. In the latest quarterly earnings report, it stated that $500m was saved during the period. Further, management said: “We are on track to meet or exceed our $7.5bn annualized savings target by the end of fiscal 2024”.
This is a large positive, as the shedding of such expenses highlights there was a large amount of unnecessary spending going on.
The other side of the coin is growth. Income before tax for the quarter was $2.87bn, up 62% from the same quarter the year before. I think the company can continue to push further here. When I add up higher income and lower expenses, it’s a natural recipe for a higher share price.
The share price is up 18% over the past year. But at $119, it’s still a long way back from levels above $175 it traded at in 2021. Therefore, I think there’s plenty of scope for this to continue to rally. I’m thinking about adding this to my portfolio.
