Home MarketsStocks Will Walt Disney Stock Underwhelm in 2023?

shares of Walt Disney (DIS 0.59%) has struggled in 2022, but the company has come up with big arms, recently announcing that beloved CEO Bob Iger will be returning to lead the company. It’s almost the end of the year, so shareholders may be celebrating the New Year with Eiger at the helm. After all, Iger was integral to making Disney the entertainment giant it is today.

But not everything is as rosy as a day at Disneyland. The company has some fundamental flaws and Iger’s comeback fails to address some significant issues. , this may not be the winning scenario Eiger has created in the past.

There are some things Eiger’s return can’t fix in 2023

Iger has enjoyed great success as CEO of Disney, successfully acquiring blockbuster companies such as Marvel and Star Wars, and building Disney+. Still, his return isn’t like pushing an easy button and seeing all of Disney’s problems disappear. There are several

Disney still has $48 billion of long-term debt on its balance sheet, much of it from its deal with Fox. This gives the company leverage in the following ratio: Earnings before interest, taxes, depreciation and amortization (EBITDA) At 4.3, this is higher than we like. I often look for ratios less than 3. Disney has his $11.6 billion in cash on hand, which takes some financial pressure off.But huge debt burdens are hampering share buyback When Dividend payment — What the shareholders enjoyed.

DIS Cash and Short Term Investments (Quarterly) Chart

DIS Cash and Short Term Investments (Quarterly) data by Y-chart

Management probably wanted to pay off the company’s debt sooner, but since the pandemic the company has struggled to generate cash. free cash flow We’re nowhere near pre-pandemic levels, and with $48 billion in debt, $1 billion in cash flow doesn’t help much. Disney+ is still in the red, with Disney’s media segment operating profit in 2022 only $4.2 billion, down 42% year-over-year.

DIS free cash flow chart

DIS free cash flow data by Y-chart

Iger’s return could get Disney’s business back on track and move the needle in improving how much cash the company makes. So you probably can’t change the company’s balance sheet overnight. More likely Disney+ Not profitable until 2024As such, investors should set appropriate expectations. This may take some time.

Kicking the CEO can come a long way

Shareholders are excited about Iger’s return. stocks responded well when the news hits. But there are two sides to every coin, and the flip side of Iger’s return is Disney’s inability to find the right leadership for the long term, with former CEO Bob Chapek’s brief tenure Unsuccessful, Iger’s return after two years sets a new clock. Eiger should be able to help stabilize the ship while he’s there, but the financial situation above indicates that it’s probably someone else who will lay the foundation for the company’s future.

Disney is not out of the woods yet, as management is essential to the long-term growth and success of the company.Investors will have to watch who is ultimately named to head Disney after Iger, and it will be years before they know if they are the right people for the job.

Disney is one of the most famous companies on the planet, but the business faces more questions than at any point in recent memory. A strong brand and a thriving Disney+ show that the company will eventually work things out, but Disney’s short-term challenges could disappoint the stock in 2023.

Justin Pope I have no positions in any of the stocks mentioned. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Walt Disney’s January 2024 $145 long call and Walt Disney’s January 2024 $155 short call. The Motley Fool has Disclosure policy.

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