Disney CEO Bob Iger is implementing cost-cutting measures to address challenges and boost stock performance. Analysts are cautiously optimistic about the potential impact on the stock price.
Disney CEO Bob Iger is taking decisive action to address the company's current challenges by implementing more cost-cutting measures. This move has garnered cautious optimism from analysts, who believe it could help lift the stock from its nine-year lows.
In early trading on Thursday, Disney (ticker: DIS) shares rose by 6.2% to reach $89.77, following a boost from the recent earnings report. Notably, the company announced an additional $2 billion in future cost savings, bringing their overall cost-cutting target to $7.5 billion.
Despite these positive developments, Disney stock continues to hover around its lowest levels since 2014. Nevertheless, this situation has prompted some analysts to consider it as a potential bargain.
Seaport Research analyst David Joyce commented, "Mixed results, but cost-cutting measures are setting up for strong FCF growth in 2024—and a likely resumption of the dividend." His assessment includes a $96 target price and a Buy rating for Disney stock.
The resumption of Disney's dividend had already been indicated earlier this year when Iger initiated the first round of cost cuts. However, the implementation of further savings could accelerate the recovery from the initially planned "modest" payout. It is projected that free cash flow will rise to $8 billion in fiscal 2024, compared to $4.9 billion in the recently concluded fiscal year.
J.P. Morgan analyst Philip Cusick anticipated that Disney's initial annual dividend would be set at 40 cents per share.
Investment Outlook
Cusick, an analyst at J.P. Morgan, maintains an Overweight rating on Disney stock with a target price of $120. He highlights the company's strong asset mix and anticipates a significant reduction in streaming losses in the upcoming year.
Headache Over Linear TV Channels
However, Disney CEO Bob Iger continues to face challenges concerning the future of linear TV channels, such as ABC. The planned shift to a fully streaming model for ESPN presents another hurdle. Activist investor Nelson Peltz and his Trian Fund Management are expected to advocate for more radical changes as a potential proxy battle for board seats looms.
Cusick believes that Disney is unlikely to sell major linear channels but suggests exploring additional cost-cutting opportunities within the business.
Reasons for Holding On
Iger's hesitation in selling off linear TV channels may be justified. With the approach of the 2024 election year, the performance of the TV vertical is expected to stabilize. Tejas Dessai, an analyst at Global X, emphasizes that Disney's stock is becoming increasingly attractive.
Political advertising on linear TV channels is projected to receive a significant boost during the election cycle, estimated at $12 billion overall by global media agency Assembly.
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