Wall Street analysts and investors welcome Bob Iger back as CEO of Walt Disney Co. following the sudden news Sunday that the former head of the Hollywood conglomerate will return to replace Bob Chapek. And the experts began to discuss possible strategic changes he could make.
Disney shares, in pre-opening trading on Monday, were up 9.3% to $100.29 as of 7 a.m. ET. Shares hit a 52-week low of $86.28 earlier this month. When the market closed on Friday, it was down about 40% this year.
“The magic is back,” said MoffettNathanson analyst Michael Nathanson, cheering Iger’s return and upgrading his rating from “market performance” to “outperform,” while also raising his price target. his shares add $20 to $120. “We raised the valuation multiplier to reflect our greater confidence in the company’s trajectory under the leadership of returning CEO Bob Iger,” he explained in a Monday report, It also adds that company veterans can “help guide the company through this period of major secular change. .” Expert conclusion: “We applaud Disney’s board for bravely making this change.”
Nathanson noted that “we have never hidden our feelings for Mr. Iger and the work he has done in building Disney into the global powerhouse it is today.” Over the years, Mr. Iger’s decision-making and strategic positioning – which ignored the often inaccurate short-term focus of the Street – would eventually separate Disney from the media package, he explains. In addition, his communication skills and ability to focus as well as honest optimism in the face of structural challenges have created a constant momentum in the harshest media waters. We believe investors will appreciate transparency and give Disney back some of its long-lost magic with a stronger story that sends the stock high again.”
The analyst also shared his view on Chapek’s leadership: “We haven’t recommended the stock since May 2020 for a variety of reasons, including concerns that former CEO Bob Chapek is sticking around. with a streaming strategy that doesn’t make sense with today’s reality. With Disney’s limited experience in media, Mr Chapek has done an excellent job managing Disney’s parks through the challenges posed by the COVID-19 pandemic, but he seems to have stuck with it. With the streaming strategy launched on Investment Day December 2020, we feel we have created unrealistically high subscriber targets that fail to capture the underlying return on investment.”
The MoffettNathanson analyst added that he believes that “the broader transition at Disney+ from family themes and Disney-branded content to overall entertainment fare is a bad decision that will affect return on investment.”
Nathanson then outlined possible changes under Iger. “We hope and expect that Mr. Iger will review investment plans at Disney+ and refocus their investments on areas of franchise strength and away from general entertainment content. broader,” he wrote. “In other words, Disney+ – and Disney shareholders – could do better with fewer late-state subscribers including die-hard fans willing to pay high revenue per user, which will generate much higher margins.”
MoffettNathanson analyst also said that he is “worried that restructuring the company with a new DMED (Disney Media and Entertainment Distribution) division, has hurt the spirit of creative leadership and created a lot of red tape. more, slowing down decision-making. .” When I first started running as CEO, Iger “undertook a far-reaching decentralization effort to limit the oppressive influence of a centralized strategic planning team, without he later wrote in his book, Trip of a lifetime, was one of his greatest achievements and had the effect “as if all the windows were open and fresh air suddenly poured in’,” Nathanson wrote. “We wouldn’t be surprised to see him undertake a similar effort this time around, giving the company a new focus on letting creative leaders have the freedom and responsibilities. about the profit or loss they want.”
Others on Wall Street also praised Iger’s return.
“Disney is boldly changing its CEOs with former head Bob Iger returning to the chair and replacing troubled Bob Chapek,” Wells Fargo’s Steven Cahall summarized the decision in a report titled “What about Bob?” “While Chapek’s departure is not a surprise given the recent turmoil and drop in equities, Iger’s resurgence is a positive surprise.”
He emphasized that investors will see the change at the top as a clear positive. “Iger will be seen as a catalyst to improve Disney’s content aspects, and we expect larger potential strategic shifts around the long-term form of DTC (direct to consumers)”. “While this announcement doesn’t solve all of Disney’s problems, we think investors will embrace it as it puts perhaps the best leader in media into the helm. with the task of fixing things.”
After all, he notes: “In our experience, investors are die-hard fans of Bob Iger, based on his history of leading Disney through content acquisitions. major (e.g. Marvel, Pixar, Lucas, 21st Century Fox) and move into streaming (announced in 2017). The street will see him as a stable leader in uncertain times.”
Iger also returned with much admiration from the creative world. “Equally important is that Iger is seen as popular in the creative circles in Disney and Hollywood — an area where Chapek is not accepted,” notes Cahall. “Chapek is seen as a trump card in park activities, while Iger is a master of content, and we think content is arguably the lifeblood of the company (with streaming potentially earning money). get the greatest corporate value).”
What lies ahead for Disney under Iger? “Expect some strategic diversion,” the Wells Fargo expert told investors. “Disney isn’t rocking things without a lot of changes coming. Since the end of 2020 investor day, investors have been worried that DTC is overextended between franchised IP, general entertainment and sports. We expect Iger’s first order of business will be a clear blueprint for how Disney’s streaming services will shape over time, which could reopen the discussion about what Disney+ will become. a franchised IP content hub or a broader entertainment platform. Hulu’s fate will also lie in that balance. We hope to learn more about these fronts in the first days/weeks/months of Iger’s new term.”
With Iger taking over with a two-year commitment, a mandate to “set strategic direction for new growth” and a promise to work with the board to find a long-term successor, Cahall also discussed How the transition from Iger to Chapek happened. work out. “When Bob Iger left Disney in early 2020, it was a surprise for the Street, as was the relatively unknown appointment of Chapek. The two-and-a-half years since have been rocked by instability, both exogenous (e.g. COVID) and endogenous (e.g. political instability, guideline challenges). At the end of 2020 and into 2021, Chapek is considered an early success in managing the parks through the pandemic and set new high expectations for DTC at the December 2020 investor day. Since then, DTC enforcement has been hit with obstacles, with the share price recently hitting a five-year low (excluding March 2020) following its fiscal 2022 fourth-quarter results. We do not believe that the Chapek’s departure was a big surprise for investors, although we think Iger’s return is the same.”
Chapek has an “overweight” rating and $125 price target on Disney stock.
London-based PP Foresight analyst Paolo Pescatore called Iger’s return as CEO “a huge surprise and a complete surprise”. He also said CHEAP that the change at the top “underlines the state of the streaming landscape and the challenges facing all traditional media companies heading into this new world.”
Pescatore also expects changes ahead for Disney. “The bold move can seem like the right move. However, the business is at a different stage of growth,” he said. “It will take time and immediate success is not guaranteed. Short-term measures will likely mean focusing on limiting activity and efficiency.”
Meanwhile, Peter Csathy, president of consulting firm Creative Media, said CHEAP: “Oh! Didn’t see this coming! A great move for Disney to return to a stable, reliable company who now has the opportunity to calm the market, boost morale, and rethink a The transition was confusing for many of us at the time.”