NEW YORK (TheStreet) -- The Walt Disney Company (DIS) is the media and entertainment darling of Wall Street -- the stock keeps hitting new highs month after month.
Since the end of August 2013, Disney shares have advanced 45%. Year-to-date the stock is up more than 14% with few reasons to argue it can't add on a few more dollars-per-shares over the next 12 months. Shares were little changed on Wednesday at $86.69.
In spite of all the good news surrounding Disney, there might be just enough blood in the water to motivate activist investors to begin circling this meaty potential, like sharks eyeing their prey. Not lost of these predators is Disney's history of buying back shares from activist funds at above market prices in hopes that they'll go away.
During the past year at least 10 companies have repurchased blocks of shares from activist investors, including Dan Loeb and Bill Ackman according to FactSet SharkWatch. That's more than in the previous six years combined.
But activist investors may be looking for more than just a premium on the current trading level. Forcing Disney to spin off its cable-TV assets or theme parks might be the higher goal.
And for good reason: With an analysts' average consensus 1-year price target of about $90, Disney shareholders aren't looking at much upside potential. To make matters worse, at the recent price of $87.60, the 86-cent annual dividend yields less than 1%, a meager consolation for those who own the stock.
One of the biggest individual shareholders is CEO Bob Iger, who last reported ownership of close to 1.26 million shares, worth nearly $110 million. After the company's cable networks group fell 7% to $1.9 billion during the quarter ended June 28, investors including the CEO grew concerned.
It was the only Disney division that suffered a setback. All others had double-digit gains in operating income. For example, its movie-making segment experienced an impressive operating income, which more than doubled from the year-earlier period to $411 million, with revenue up 14% to $1.8 billion.
There's plenty of good news about Disney, including last weekend's strong opening of the movie Guardians of the Galaxy, which grossed $94 million in 3 days. This continued a five-year winning streak of profitable movies for Disney's Marvel studio. A sequel to "Guardians" is already planned for 2017.
In what could be a strong driver of future growth for the theme park segment are designs that should result in what the CEO called a "far greater Star Wars presence in our parks." The company's U.S. parks are flourishing with nice increases in both attendance and higher spending per guest.
Activist investors like Carl Icahn can see the same five-year chart below with its impressive financial metrics that keep propelling shares of Disney to dizzying heights.
DIS data by YCharts
That's a chart that's tough to beat and very challenging to repeat. In order to offer more than a 4% total return during the next 12 months, the company will need to pull a big rabbit out of its hat.
Before Disney has to deal with another school of hungry sharks, I suggest its management make some bold pre-emptive moves. Why not increase the anemic dividend plus spinoff its cable networks group?
Afterward the company could still retain a majority of the shares of the spinoff. This would allow it to maintain control over management decisions while rewarding both new and existing shareholders.
Just the announcement of the possibility of such a meaningful step would, in my opinion, goose the stock price nearly 10% higher. That would send a powerful message to activist investors to stay away because this iconic dynasty needs no inducements to please its shareholders.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates DISNEY (WALT) CO as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate DISNEY (WALT) CO (DIS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Powered by its strong earnings growth of 26.73% and other important driving factors, this stock has surged by 31.39% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- DISNEY (WALT) CO has improved earnings per share by 26.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DISNEY (WALT) CO increased its bottom line by earning $3.38 versus $3.12 in the prior year. This year, the market expects an improvement in earnings ($4.19 versus $3.38).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Media industry average. The net income increased by 21.5% when compared to the same quarter one year prior, going from $1,847.00 million to $2,245.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 12.1%. Since the same quarter one year prior, revenues slightly increased by 7.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Media industry and the overall market, DISNEY (WALT) CO's return on equity exceeds that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: DIS Ratings Report