Disney (DIS) in Activist Drama as ValueAct Builds a Large Stake

$Walt Disney(DIS)$ is in the midst of an interesting investor battle as two hedge funds, Value Act and Trian Fund, have built large stakes in the third quarter.

Entertainment giant Walt Disney is in the midst of activist investor drama as another hedge fund, ValueAct Capital, builds a large stake in it.

As per multiple reports and as discussed by CNBC anchor David Faber, ValueAct has steadily built up a stake worth roughly $1 billion in Disney in the third quarter. The share buying began in the summer, when the strike between Hollywood Studios and the actors/writers’ guild began. ValueAct continues to buy more shares of Disney as it sees the stock as undervalued.

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Activist Commentary:

ValueAct has been a premier corporate governance investor for over 20 years. ValueAct principals are generally on the boards of half of ValueAct’s core portfolio positions and have had 56 public company board seats over 23 years. ValueAct has filed 89 13D’s in their history and has had an average return of 57.57% versus 17.52% for the S&P 500 over the same period.

DIS stock gained 3.1% on the news, closing at $93.93 on November 15.

Interestingly, ValueAct’s Co-CEO Mason Morfit is seen as a “friendly” investor and counselor to the companies in which the fund invests. Morfit is said to be supportive of Disney’s current strategy. Moreover, he believes that Disney’s stock price should double in the future.

The news follows reports of another activist investor, Nelson Peltz’s Trian Fund, adding to its Disney stake in Q3. Peltz has been waging a proxy fight with Disney for months and is seeking multiple board seats. Peltz has also won the support of Isaac Ike Perlmutter, ex-CEO of Marvel Entertainment in his fight.

With ValueAct’s surprising entry, Disney’s shareholders now have a choice between two contrasting activist investors. Considering their historical work styles, Disney may add Morfit to its board to ensure a more pleasant and seamless turnaround for the company.

Is Disney a Buy, Sell, or Hold?

In the third quarter of 2023, The Walt Disney Company generated about 22.33 billion U.S. dollars in revenue. Company's revenues for the quarter grew by 3.7 percent year-on-year.

Yesterday, Deutsche Bank analyst Bryan Kraft cut the price target on $Walt Disney(DIS)$ to $115 from $120 while maintaining a Buy rating. Kraft believes Disney has “turned the corner” in its Q4FY23 results, but streaming profitability remains a challenge.

On TipRanks, Disney has a Moderate Buy consensus rating based on 19 Buys, six Holds, and one Sell rating. The average $Walt Disney(DIS)$ price forecast of $107.23 implies 14.2% upside potential from current levels. Year-to-date, DIS stock has gained 5.6%.