2. The Walt Disney Company (NYSE:DIS)
Year-To-Date Decline as of November 25: 36.93%
Number of Hedge Fund Holders: 112
The Walt Disney Company (NYSE:DIS) is one of the largest global entertainment companies, with operations in media networks, parks and resorts, studio entertainment, and consumer products & interactive media. The company has a strong track record of creating successful businesses. The company has a strong cash position and according to its balance sheet, The Walt Disney Company (NYSE:DIS) has free cash flows of $1.06 billion. As of November 25, The Walt Disney Company (NYSE:DIS) is down roughly 37% year to date.
On November 21, MoffettNathanson analyst Michael Nathanson upgraded The Walt Disney Company (NYSE:DIS) to Outperform from Market Perform and reiterated his $120 price target.
At the close of Q3 2022, 112 hedge funds were long The Walt Disney Company (NYSE:DIS) and disclosed stakes of $3.89 billion in the company. This is compared to 109 positions in the previous quarter with stakes worth $3.19 billion. The hedge fund sentiment for the stock is positive. As of September 30, Fisher Asset Management is the top shareholder in the company and has a position worth $484.9 million.
Here is what Third Point specifically said about The Walt Disney Company (NYSE:DIS) in its third-quarter 2022 investor letter:
“As disclosed in our Q2 letter, we reinitiated a significant position in The Walt Disney Company (NYSE:DIS) when the company retested its Covid lows earlier this year. At the current price, Disney is trading for little more than the stand-alone value of its Parks business and a mere 15x ’24 “street” consensus. The company remains early in its Direct to Consumer (“DTC”) transition with a leading market position, and yet the current stock price ascribes negligible value to the streaming business. We believe this is due to questions around the terminal economics of streaming, given large losses being generated today at Disney (>$1 billion dollars last quarter) and stagnating margins at peers such as Netflix. On the last earnings call, management highlighted three items that could lead to an inflection in DTC profitability over the next 12 months: a 38% price increase for Disney+ in the US; moderating growth in cash content expense; and an advertising tier for Disney+ launching in two months that can drive additional ARPU given high demand for the Disney brand amongst advertisers.
While the company has guided to Disney+ achieving breakeven sometime within the fiscal year ending September 2024, the valuation suggests the market remains skeptical. Disney only trades at ~14x the $7 in earnings generated prior to the Fox acquisition, which implies investors don’t expect earnings to meaningfully exceed this figure in the coming years. Hence, the first value driver we highlighted in our last letter is the opportunity for management to optimize Disney’s cost base to drive earnings growth. We believe Disney has ample means to rationalize costs across its operating platform and deliver targeted content for home viewing that does not entail the same cost structure of exclusive theatrical releases…” (Click here to view the full text)
