Why I Just Sold Half of My Disney Shares
Once my ninth largest holding, the House of Mouse is now outside of my top 15. Here's my plan for this position going forward.
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Everyone who reads me here on TheStreet Pro, knows that I am a Disney DIS fan. I have traded the stock both well and quite poorly at times over the years. The one year that I made Disney my stock of the year was awful to put it mildly.
Everyone who reads me also knows that I am a Nelson Peltz fan. Where he and his firm, Trian Partners, go, money tends to follow and so do I. Hence, I was rooting for Peltz and former Disney CFO Jay Rasulo, Trian's nominees, to win spots on Disney's board of directors. The fact is, though, Peltz has already had a huge impact.
Is the pressure on CEO Bob Iger placed by Peltz the reason that Disney was able to exceed cost-cutting targets? Since climbing back aboard, Iger has cut annual expenses by $7.5B and reduced headcount by 8K jobs.
Is Peltz the reason that the stock went much higher while this proxy fight ensued? I was up 43% on the trade when I sold half of my long position Wednesday. Even in defeat, after shareholders chose Disney's slate of nominees over all challengers, Trian is estimated to have made something like $300M on their investment through the process. I am willing to lose like that all day long. Every day.
Moving Forward...
So, Nelson Peltz profited handsomely, and Bob Iger gets a vote of confidence while seeing his holdings appreciate as well. Win/win?
Now, Iger can get back to business. Disney has recently settled the company's differences with Florida Governor Ron DeSantis, and recently brought on new board members tasked with oversight over succession. Iger is 73 years of age and was happily retired when Disney asked him to return to his old job.
The company still has to complete the transformation of its large streaming footprint from a cost center to a profitable business that contributes to the whole rather than having to be subsidized by its more successful businesses. That includes the purchase of the portion of Hulu that it does not already own and then reorganizing and integrating that service with Disney+.
Wall Street Reaction
In response to Wednesday's news, analysts Benjamin Swinburne of Morgan Stanley and Michael Morris of Guggenheim, who are both rated at five stars (of five) by TipRanks, reiterated "buy" ratings.
Swinburne left his price target at $135, while Morris increased his target from $125 to $140.
Earnings Preview
Disney is set to report on or close to May 10. Wall Street is looking for adjusted EPS of $1.09 (GAAP EPS of $0.92) on revenue of $22.4B. This would compare to the year-ago adjusted EPS of $0.93 and reflect revenue growth of 4%.
The focus will be on the company's transformation, guidance and free cash flow more than they will be on past quarter performance.
Disney Stock
Readers of Doug's Daily Diary on TheStreet Pro know that my price target for DIS was $120. The stock finally met that target on March 26.
On Wednesday, I sold half of my long position, which was probably a little larger than it should be, at an average of $121.06. Not bad for a kid with a $120 target. I sold half because the reason for the size of my position has been removed.
I remain long, because I still think that the company has a way to go to the upside, but without Peltz around to kick some tail, it could take a longer more winding road to get where it will ultimately go.
My Plan
Relative Strength and the daily Moving Average Convergence (MACD) are far weaker than they were a day ago. The stock, in my opinion, will likely test the 21-day exponential moving average (EMA) and could test the 50-day simple moving average (SMA). On that test, if the line cracks, the unfilled gap created in early February becomes an issue. The stock has to trade at $99 to fill that gap.
Do I buy my shares back at $99? Actually, I probably buy my shares back at or close to the 50-day line. Should the gap fill, I'll be long more than just my current position plus the shares I sold by then.
Disney was my ninth largest holding and is now outside of my top 15 at number 17. Will I buy back what I sold if DIS never trades down? Yes, upon the creation of a new 2024 high.
At the time of publication, Guilfoyle was long DIS equity.
