What do we do now with the stock of Walt Disney ? If you had the opportunity to hear activist investor Nelson Peltz, the defeated candidate for the Disney board, you did not get a definitive answer, as much as I pressed. We know that when Peltz tried to get on the board last time, he withdrew his candidacy in February 2023. He told me right on CNBC that he was happy with the changes that then-newly returned CEO Bob Iger said he would make. But, at the same time, Peltz took a nice profit on a big chunk of stock. When feeling that Iger was not delivering, Peltz came back and went through the formal process to get board seats but was defeated after what can only be described as a most bitter battle. In my CNBC interview with Peltz on Thursday, he assured us that he would be back if Iger didn’t deliver on his promises. “I hope Bob can keep his promises. I hope they can do all the things they assured us they were going to do,” Peltz told me. “We’ll only watch and wait. If they do it, they’ll never hear from me again. If they don’t, Jim, you may be seeing me on your show next year.” I know that may seem like a foolhardy exercise, but I think the opposite: if we go into proxy season next year and no candidates have been named to replace Iger and the cost takes outs weren’t made and Disney’s streaming isn’t profitable, Peltz will most likely get the votes of the index funds and will have a stronger challenge. Peltz said his issue was not with Iger, it was with the board. He stressed over and over Thursday, and in his argument for the seats, that a succession plan has been needed and the board has not delivered. In an earlier interview on CNBC on Thursday, Iger did address succession plans, particularly the failure of the last one that put Iger’s handpicked successor, Bob Chapek, at the helm, right as Covid was emerging and subsequently ravaged Disney’s main revenue streams of parks and movies during lockdowns. Iger said Disney has learned from the past and the board’s No. 1 priority has been and continues to be coming up with a successor. Iger talked about the board’s succession committee, which former Morgan Stanley CEO James Gorman and now Disney board member, is on. “They met seven times last year. They intend to meet even more this year. They’re confident that they’ll pick the right person at the right time,” Iger said on CNBC . Iger did refuse to put a timetable on that process, which he said had not changed since the start of Peltz’s activist fight. He said the board recognizes that he’s “not going to be here forever,” and that’s why they have been working on succession plans since the moment he returned as CEO in November 2022 when Chapek was fired. Understand, we are not an egoist society here. We are a stock Club and I think that a lurking Peltz who owns a lot of stock or is a steward of stock that is owned by Ike Perlmutter, the aggrieved seller of Marvel Entertainment to Disney in 2009 in return for a stock that has not outperformed, is a good thing. I most feared the blowout in Disney stock in a fit of pique and right now I am not seeing that. DIS .SPX mountain 2009-01-01 Disney vs. S & P 500 performance since 2009 Obviously, if Iger delivers on his promises, including $7.5 billion in cost cuts, the stock has a good chance of going higher. Here are more details on the rest of our checklist: We need to see a well-thought-out succession plan. This was one of our biggest gripes about the current board, considering its mishandling last time Next is execution on DTC margins. Finally having a profitable quarter later this year is an important milestone, but we want to see a fast ramp to its double-digit margin goal to feel better about the shrinking profits at linear. Disney also needs to get its creative back on track. It’s so important that Disney starts making hits at the box office because this IP feeds into a larger monetization strategy with its Parks and experiences business. Finally, get the most out of ESPN. We understand Disney has plans to make ESPN a flagship DTC product, but it’s also exploring a big joint venture with Fox and Warner Bros. Discovery. We don’t know what the best decision is for ESPN going forward, but whatever management decides needs to be right. With that said, do we buy more, sell more, or hold following Monday’s trim ? I think the answer is one that we would give regardless of the egos involved. We would review the company; it’s doing better than it was. We would review the leadership; it’s offering some very good ideas. And, we analyze the sector. The latter is, unfortunately, a real bad sector. It’s only gotten worse, not better since the proxy fight began. Cord-cutting? Continues apace. Content creation? In sports, it’s being jacked up by the mega-caps which can afford far more than Disney can. Theme parks? Good business, not enough to merit a large position. So, would selling some stock based on the milieu make sense? We are restricted, we can’t do it. But you can. We would cut back to a 3% position weighting in the Club portfolio. It’s currently pushing a 4% weight. That’s our recommendation as Iger’s word may not come true because of the dire circumstances of linear television and difficulties in affording sports content versus an Apple , an Amazon or an Alphabet — all three of which are also Club stocks. (Jim Cramer’s Charitable Trust is long DIS, AAPL, AMZN, GOOGL, MS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Read the full article here
