2. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holdings: 113
Share Price (as of August 15): $124.26
YTD Declines (as of August 15): 20.31%
Headquartered in Burbank, California, The Walt Disney Company (NYSE:DIS) is an American multinational mass media and entertainment conglomerate. It was a leader in the American animation industry in the 1950s, and has since diversified into live-action films, television, streaming, and amusement parks. Hedge fund sentiment around the stock has increased slightly, with 113 hedge funds having a collective stake of $5.2 billion in Q1 2022, up from 111 hedge funds having a stake value of $6.94 billion in Q4 2021. As of the second quarter of 2022, Ric Dillon’s Diamond Hill Capital is the largest shareholder in the stock, with a stake of $300.1 million.
Due to macro headwinds, The Walt Disney Company (NYSE:DIS) is having a tough time in 2022. Shares have underperformed more than 40% from their 2021 high, due to overall consumer spending weakness and broader macro uncertainties. The company posted a total revenue of $19.2 billion in the first quarter of 2022, up 29% year-over-year. On the other hand, an earnings-per-share of $1.19 in Q2 2022 was 32% below the result from three years ago, pointing to a depressed earnings environment. There was a significant drop in the operating income of the Media and Entertainment Distribution segment of the company, holding The Walt Disney Company (NYSE:DIS) back from stronger profitability. All of this was owing to record inflation, an inhibited spending power overall, rising interest rates, and global growth concerns. Sales were also down due to the company’s controversial response to the “Parental Rights in Education” legislation in Florida.
However, analysts are convinced that the current valuation provides an attractive entry point for long-term investors. The Walt Disney Company (NYSE:DIS) has demonstrated resilience with a sales and earnings beat that outperformed peers in the June quarter. The stock was well rewarded with post-earnings late-trading gains of as much as 7% as of August 10, with analysts expecting the momentum to sustain and progress favorably towards long-term growth and profitability goals. On July 27, Evercore ISI analyst Vijay Jayant lowered the firm’s price target on The Walt Disney Company (NYSE:DIS) to $38 from $44, maintaining an Outperform rating on the stock. Jayant claimed that he continues to favor Disney (NYSE:DIS) citing the company’s credible streaming strategy and synergized growth story.
Here is what Oakmark Funds had to say about The Walt Disney Company (NYSE:DIS) in their Q2 2022 investor letter:
“Disney (NYSE:DIS) is one of the most beloved consumer companies in the world. Its media business has a rich library of intellectual property, which provides a powerful engine for creating new content across the Disney (NYSE:DIS), Pixar, Marvel, and Star Wars brands. This content also contributes to the success of Disney’s (NYSE:DIS) theme parks, which generated nearly half the company’s earnings and grew more than 10% annually in the decade prior to the pandemic. Shares have fallen nearly 50% over the past year as investors worried about the company’s ability to transition its media business to a direct-to-consumer streaming world. This transition has required management to make investments in its Disney+ streaming service that are depressing profitability today. However, we believe these investments will ultimately produce attractive returns as Disney+ continues to grow subscribers and increase pricing over time. As a result, we were able to purchase shares at a substantial discount to our estimate of intrinsic value.”
