Can Bob Iger's Return to Disney Revive Optimism?

With the return of Bob Iger to the helm, there is much expectation about what changes could be announced, and a renewed focus on guidance.

Box Office Wins, But No 'Magic' Expected

Disney's fiscal first-quarter earnings will be the first since Bob Chapek was summarily dismissed and replaced with the previous CEO following disappointing results. Chapeck was seen prioritising Disney's incursion into subscription channels, spending substantially on broadening out the content. But user numbers for Disney+, Hulu and ESPN+ have not proven to be such a decisive winner in the face of increasing competition. Additionally, the parks had underperformed in the first part of the year, with the final wave of covid in the '21-'22 winter denting demand.

Earnings are expected to get a boost from the box office after the latest Avatar release grossed over $2.0B, beating out the previous title holder from Disney, Avengers: Engame. Speaking of Avengers, Iger ran the company during the acquisition of Marvel and the subsequent development of the MCU and Star Wars. This helped Disney rack up 7 of the top 10 highest-grossing films ever. Iger will only run the company for two years until another replacement is found, so he might not pull off similar box office magic that would help boost investor confidence.

Resuming Dividends and Buybacks?

Although visitor numbers to parks have substantially improved, the impact of inflation on consumers' spending habits might have been a headwind. On the other hand, the flagship streaming service managed to add more subscribers in the last quarter than expected, though it's an open question whether it can repeat that feat now.

The other issue is that now that Disney is fully open for business, the suspension of the dividend and buybacks since the pandemic's start isn't as justified. Any potential indication that shareholder payouts will return will be of particular interest to investors. Disney is expected to report slightly improved earnings of $0.78 on also slightly improved $23.4B sales.

The Road Ahead as Walt Disney Gains Momentum

The share price of Walt Disney has printed a terminal falling wedge pattern, suggesting a reversal at $84. With the second peak at $100 on the rearview mirror, the next level up lies at $127. Only a break past there would confirm the reversal, but the next swing at $130 is only marginally higher. 

The bounce since the low has done relatively well on its impulse up, and a pullback could be underway. Typically at this stage of the cyclical shift, corrections are deep, with prices expected to reach levels below triple digits and still be upwardly biased. But once the 50% of the full leg is lost, sentiment could weigh on the share price further, with $90 being somewhat of a last line of defence.

Source: Spreadex

Key Takeaways

Bob Iger's return to the helm of Disney has signalled a renewed focus on guidance, with much anticipation of what changes he could bring about. Disney's fiscal first-quarter earnings will be the first since Bob Chapek was summarily dismissed and replaced with Iger, and box office wins are expected to help the company improve its financial results. However, the performance of its subscription services will be watched closely, while inflation has taken a toll on visitor numbers to its parks. The other issue is that now that Disney is fully open for business, the suspension of dividends and buybacks since the pandemic may not be justified anymore.