Disney Stock and The Bob Iger Effect

Key Points

• Disney CEO Bob Iger laid out a plan for the company that has activists standing down. 
• The company plans to restructure and cut costs. 
• The dividend may come back soon, another tailwind for the price action. 

Shares of The Walt Disney Company NYSE: DIS have been on a roller coaster ride for the last few years, leaving investors less than enthused. The latest twist in the ride, however, included the renaming of Bob Iger to the helm, a move that is getting lots of positive attention.

The question now is what Bob will do, and what Bob is doing is everything the market could hope for and more. Not only is he focusing on the core business, but he is cutting costs, positioning for the future and aiming to bring back the dividend. What this means for investors is an improvement in shareholder value that has put a bottom in action and has the stock on track to begin moving higher once more. 

Disney Dazzles With Results, Bob Iger Makes Change 

Disney’s Q1 results, which include about 2 months of Iger in charge, came in much better than expected and coupled with a plan to reshape the company that has alleviated a major headwind in the form of Nelson Peltz. The company beat on the top and the bottom lines with strength apparent in several segments.

The key takeaway is that cost-cutting and focus on efficiency are already apparent, with the bottom line outperforming the consensus by 2000 basis points compared to only 100 bps at the top line. 

The company did not give any guidance, but Mr. Iger left the market with some positive commentary and plans to reshape the business. The restructuring will consolidate media assets into 3 operating units that will come with 7,000 job cuts and billions in projected savings. 

“After a solid first quarter, we are embarking on a significant transformation, one that will maximize the potential of our world-class creative teams and our unparalleled brands and franchises,” said Mr. Iger, Chief Executive Officer of The Walt Disney Company. “We believe the work we are doing to reshape our company around creativity, while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders.”

One Headwind Eases, And Another Tailwind Begins To Blow 

Nelson Peltz has been on the warpath to reshape Disney, but he says the fight is over. The moves Bob Iger is making are the ones he wanted to be made, so now there is no need to make a fuss. This is good news for the market because it will relieve uncertainty at the very least and may even reduce volatility.

The tailwind is the possible return of the dividend. Disney suspended the dividend payment due to COVID and has yet to return it. Mr. Iger is indicating he will urge to board to reinstate the payment as soon as possible. If they bring it back to the pre-pandemic level of $1.66 annually, it would be worth 1.45% to investors with shares at $115. 

Shares of Disney popped in the wake of the report, but the stock is not out of the woods. The market has been under a lot of pressure for the last year and may move sideways until there is more evidence the change is working.

In this light, the market could see a retest of the $90 level and range-bound trading at or near the current levels is more than a possibility. Longer term, assuming the changes do bear fruit, this stock should shake off its slump and get back above the $140 level on its way to retesting the pandemic highs.