Nelson Peltz is at again.
The Trian Fund Management titan is making a renewed push for board seats at Disney (DIS -1.44%) after backing off from demands in February.
Peltz is best known as an activist investor who frequently targets consumer stocks. He’s the chairman of Wendy’s Co., and has agitated for changes at Mondelez, Kraft Heinz, Procter & Gamble, and Unilever.
According to The Wall Street Journal, in the months he’s been quiet, Peltz’s Trian Fund has been busy amassing a stake in Disney that is now worth more than $2.5 billion.
The Trian co-founder pulled back on his original push for a board seat back in February after Disney announced a restructuring and promised to cut costs, but Disney stock has spiraled since then, touching a nine-year low last week as challenges have mounted in the business. The swooning share price seems to explain why Peltz has returned, this time with even more demands.
What Peltz wants
Peltz is reportedly planning to request multiple board seats, including one for himself.
He had originally criticized Disney for profligate spending, including the deal for Fox‘s entertainment assets; called on it to buy the remainder of Hulu from Comcast or dump the entire business; said it should increase capital expenditures at its parks business, which it has since announced plans to do; and attacked it for its failed succession plan after former CEO Bob Chapek was yanked and CEO Bob Iger was brought back in.
Since Peltz backed off from his proxy fight, Disney stock has fallen another 23%, and that includes a 2% gain on Monday after the Journal broke the news of his new campaign for a board seat.
Over the past eight months, the entertainment giant has continued to struggle to deliver the promised turnaround. It’s still losing money in the streaming division, and profits are quickly disappearing from its linear networks division as cord-cutting proliferates. The company has lacked a big hit at the box office this year, and even its parks division, which has been a ballast for the company as pandemic restrictions eased, has suffered over fears of a slowdown and concerns that it raised prices too much.
Meanwhile, the Hollywood strikes have put production on hold, and rumors have swirled of a potential asset sale, though none has yet taken place. The company also said it would invest nearly $60 billion in its parks division over the next decade, nearly doubling its previous level of investment.
Is Disney stock undervalued?
Like most activist investors, Peltz’s primary contention is that Disney stock is undervalued, and he wants to see the company unlock that value through cost controls and driving profits in streaming, which Disney expects to do within the next year.
Peltz’s core argument, that the company has the potential to unlock greater value, rings true. The fact that the company — which has added the Fox assets and a bevy of streaming services to its arsenal in recent years — is trading near its lowest level in nine years seems unacceptable, and it could be only a matter of time before that changes.
Achieving profitability in streaming would be a major win for Disney if it can hit it by the end of fiscal 2024, and the company should take a significant step closer to that after it raises prices. The company also seems likely to sell some of its “non-core assets,” like ABC or some of its cable channels, to raise capital, and Disney said it’s looking to take on a partner for ESPN.
Meanwhile, expanding its parks business will increase cash flow, and the company is expected to reinstitute its dividend by the end of the year, which could also give the stock a boost.
Disney still faces a slew of challenges, including the decline in linear TV and movie theater attendance, increased competition for live sports rights, and weakness in the ad market.
However, it seems more likely that things will improve from here rather than get worse, especially in the crucial streaming segment, and too much negativity seems priced into the stock.
Peltz could help make a comeback happen. Keep an eye on his latest battle for a place on the board, as investors still seem to think Disney stock is in need of a shake-up.
Jeremy Bowman has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends Comcast, Kraft Heinz, and Unilever Plc. The Motley Fool has a disclosure policy.
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