Wells Fargo said Tuesday it expects Walt Disney (DIS) to “get out of the game” when the entertainment conglomerate reports first-quarter financial results early next month. At the Club, we are a bit more careful and will be following closely the detailed recovery plan from CEO Bob Iger. When Disney releases its first quarter earnings report on Feb. 8, analysts expect earnings per share of 80 cents per share, down 24.5% year-over-year, with total revenue up 7% year-on-year. with last year. a year, up to $23.35 billion, according to Refinitiv estimates. “We think DIS management will falter in response to the F1Q23 challenge to ward off criticism. We see a shift towards [intellectual property] instead of [subscriber targets], aggressive actions to reduce costs and the possibility of increasing profits. We love this setup in print,” Wells Fargo analysts wrote in a research note. Analysts have predicted that Disney’s financial performance could improve if the company refocuses on generating revenue from intellectual property assets such as brands, characters and properties associated with the classic entertainment franchise. At the same time, Wells Fargo predicts that Disney could announce a plan to cut costs by about $2 billion in its Direct Selling (DTC) business, largely made up of its beleaguered streaming operations. – increase profitability by the beginning of fiscal year 2024. The streaming division includes Disney+, Hulu and ESPN+. Disney launched an ad tier for Disney+ in early December, but the company said it doesn’t expect to reap the benefits before the end of this year. Disney posted a $1.47 billion operating loss in its DTC division in the company’s fiscal fourth quarter – a dismal quarter that prompted the board to step down. CEO Bob Chapek and bring Disney veteran Bob Iger back to the corner office. Gearing up for Disney’s next earnings call comes as Nelson Peltz, CEO and founder of activist investment firm Trian Partners, fights an ongoing fiduciary battle to secure a seat on the Disney board of directors. Peltz said he wants to “work with Bob Iger and other directors to take decisive action that will lead to improved operational and financial performance.” Disney’s board of directors unanimously decided earlier this month not to offer Peltz the seat, according to a recent SEC filing. Trian currently owns a nearly $1 billion stake in Disney. Like other investors, including Club, Trian expressed disappointment at Disney’s streaming losses, cost overruns and a more than 44% drop in share price last year. Disney shares are up over 21% since the start of 2023. “Trian wants a higher share price and is going to push management to make decisions that it believes will help achieve that goal,” Wells Fargo said. The bank reaffirmed its Overrated or Buy rating on Disney shares with a target price of $125 per share. Disney shares closed up 0.29% on Tuesday at $106 a share. The club believes Disney’s upcoming earnings will be a chance for Iger to recalibrate the company’s strategy and address some of the pain points that have been troubling investors, including excessive spending, debilitating streaming losses and a deteriorating balance sheet. If the company announces a robust and comprehensive cost-cutting plan, it could help boost Disney’s long-term profitability and allow the stock to rise. As we have been arguing for several months, many companies, especially in technology, need to make a turn towards profitability, and we believe that cost reductions will be well received by the market. We remain cautiously optimistic that Iger, who in his previous roles as CEO and Chairman helped create value for the iconic company, will be able to turn things around at this pivotal moment. But we also support Peltz joining the board of directors because he will push for the cost discipline that the company so badly needs. (The Jim Cramer Charitable Foundation is a long DIS. See the full list of stocks here.) As a CNBC Investing Club subscriber with Jim Cramer, you will receive a trade notification before Jim completes the trade. Jim waits 45 minutes after sending a trade alert before buying or selling shares in his charitable foundation’s portfolio. If Jim was talking about a stock on CNBC, he waits 72 hours after a trade alert is posted before making a trade. THE ABOVE INFORMATION ABOUT INVESTMENT CLUB IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO FIDUCIARY RESPONSIBILITIES OR OBLIGATIONS ARE OR ARISING IN CONNECTION WITH YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT IS GUARANTEED.
Disney World’s Magic Kingdom in Orlando, Florida.
Joe Radle | News Getty Images | Getty Images
On Tuesday, Wells Fargo said it expects Walt Disney (DIS) to “blow out” when the entertainment conglomerate reports first-quarter financial results early next month. At the Club, we are a bit more careful and will be following closely the detailed recovery plan from CEO Bob Iger.
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