Walt Disney CEO Bob Iger has one remedy for the tangle in which the company finds itself—more cost cuts. Analysts are cautiously optimistic that will be enough for the stock to rise from its current nine-year lows.
Disney
(ticker: DIS) shares were up 6.2% in early trading Thursday at $ 89.77 after an earnings report boost. The headline surprise was an extra $2 billion in future cost savings, bringing the company’s cost-cutting target to $7.5 billion.
Disney stock is still hovering at around its lowest levels since 2014 and that has some analysts looking at a potential bargain.
“Mixed results, but cost-cutting measures are setting up for strong FCF [free cash flow] growth in 2024—and a likely resumption of the dividend,” wrote Seaport Research analyst David Joyce.
Joyce has a $96 target price and Buy rating on Disney stock.
Disney’s dividend resumption had already been signaled earlier this year when Iger implemented the first wave of cost cuts, but more savings could signal a faster ramp up from the “modest” payout the company has pledged to resume initially. Free cash flow is set to rise to $8 billion in fiscal 2024 from $4.9 billion in Disney’s recently ended fiscal year.
J.P. Morgan analyst Philip Cusick said he was modeling Disney’s initial annual dividend at 40 cents a share.
Cusick has an Overweight rating and $120 target price on Disney stock, citing a strong asset mix and a likely rapid decline in streaming losses in the next year.
Iger still faces a headache over the future of linear TV channels such as ABC and the planned transition to a fully streaming model for ESPN, Activist investor Nelson Peltz and his Trian Fund Management are expected to push for more radical changes ahead of a potential proxy battle for board seats.
J.P. Morgan’s Cusick said he still doesn’t expect Disney to sell any major linear channels but there should be additional cost-cutting opportunities in the business.
There might be good reason for Iger’s reluctance to be rushed into selling off linear TV channels.
“We believe the TV vertical’s performance could stabilize heading into an election year, and [Disney] stock appears increasingly attractive,” said Tejas Dessai, an analyst at exchange-traded fund provider Global X.
Spending on political advertising on linear TV channels is likely to be boosted in the 2024 election cycle. Global media agency Assembly has estimated political advertisers are likely to spend $12 billion overall during the cycle.
Write to Adam Clark at [email protected]
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