New Disney investor propels stock to ranks of best S&P gainers

Key Points

• Disney emerges as a top performer in the S&P 500, fueled by enthusiasm about activist investor ValueAct accumulating a significant stake.
• Investors have also piled in as the company is slashing costs and adding streaming customers.
• Disney stock surged 11.16% in the past five trading sessions.

You don’t necessarily expect a well-established Dow component, a company that went public in 1957, to be among the top-performing S&P 500 stocks in the past five sessions.

That’s exactly what is happening to the Walt Disney Co. NYSE: DIS as investors are cheering the company’s cost-cutting efforts and a return to subscriber growth in its Disney+ streaming service. 

In addition, the stock got a 6.41% boost on November 15 on news that activist investment firm ValueAct Capital had taken a significant stake in the entertainment giant. 

Disney investors have been clamoring for change at the company, even to the point of hoping that Disney sells off some of its properties, including ESPN. A big problem for the company is reduced viewership on linear TV channels, such as its ABC Network. 

Disney has said a selloff or business reorganization is possible, with the stock jumping after those hints. The company is reportedly mulling the transfer of some of its smaller TV properties into a joint venture with Hearst. 

Those properties include A+E Networks, the History Channel and Lifetime. 

ValueAct brings experience in media business

ValueAct has experience in the media space, with investments in Spotify Technology S.A. NYSE: SPOT and the New York Times Co. NYSE: NYT. That track record gave Disney investors some hope that ValueAct would have some expertise to help solve some of Disney’s problems, including sluggish box office for the company’s theatrical releases.

CNBC originally reported on the ValueAct investment, saying that it’s continuing to accumulate shares in Disney. That could account for some of Disney’s price gains in November, as well as the stock’s uptick of 0.67% in October. 

ValueAct has not yet disclosed in regulatory filings how large of a stake it’s taken in Disney, but it’s reportedly among the investment company’s largest holdings. 

According to reports, ValueAct has a particular interest in Disney’s consumer products and theme park business units, exactly the properties that CEO Bob Iger discussed in a previous earnings call, addressing an analyst’s question about possibly breaking up the company.  

San Francisco-based ValueAct also has stakes in Microsoft Corp. NASDAQ: MSFT, Adobe Inc. NASDAQ: ADBE and Nintendo Co., Ltd OTCMKTS: NTDOY, among many other companies in numerous industries. 

Q4 earnings cheered investors

Disney stock is up 11.16% in the past five trading sessions after gapping up 6.91% on November 9 following its fourth-quarter earnings report. 

Disney has been a top performer among consumer discretionary stocks, although it’s tracked within the Communication Services Select Sector SPDR Fund NYSEARCA: XLC. Given Disney’s various and sundry lines of business, there’s a valid argument for the stock to be considered either a consumer or communications stock. 

MarketBeat’s Walt Disney earnings page shows you exactly what happened in the fourth quarter: Earnings grew by 173% to 82 cents a share, topping views of 67 cents a share. That was the best earnings growth since the quarter ended in December 2021.

Revenue grew by 5% to $21.24 billion, exceeding analysts’ views of $21.37 billion. 

Positive developments in the quarter

That’s slower than revenue growth in 2022, but analysts and investors were cheered by several developments in the quarter. Those included:

• Disney+ added nearly 7 million core subscribers in the quarter.
• Domestic ESPN revenue and operating income grew year over year in both fiscal year 2022  and fiscal year 2023.
• The experiences business unit’s operating income increased by over 30% versus the prior-year quarter, with year-over-year growth across all international sites, Disney Cruise Line, Disney Vacation Club and Disneyland Resort.
• The company said it’s continuing to aggressively manage its cost base, and increased its annualized efficiency target to $7.5 billion, versus $5.5 billion previously.

All in all, those results bode well for Disney stock, as institutional investors have been pressing media companies across the board to focus on profits from streaming, and to rein in costs. 

A look at the Walt Disney chart gives a clear picture of a stock that’s declined 54% since its high in March 2021. Investors have been selling shares as the revenue growth slowed, largely on poor performance from Disney’s streaming services and its once mighty linear TV business.