Breaking Down Disney Price Action After Iger's Return: 'Best-In-Breed' Or Dead Mouse Bounce?

The immediate price reaction to a change in leadership at a major company can be very misleading. The reason: the non-stop pumping from the media creates a euphoria that may be overdone.

A case in point is Walt Disney Co DIS, which on Monday brought back its former CEO Bob Iger to replace Bob Chapek. The co-hosts of the PreMarket Prep show were on opposite sides of the issue on Monday, and its price action Tuesday makes it the PreMarket Prep Stock of the Day.

Disney's Price Action After Q3 Earnings: The issue was destroyed following its third-quarter report earlier this month, having one of its worst days ever. On Nov. 9, the issue swooned $13.15 or 13%, falling from $99.90 to $86.75.

The low for the day ($86.28), was the first time the issue traded under $90 since March 2020. The issue staged a nice rebound off that level, briefly reaching $97.18 last week, but weakened to close on Friday at $91.90.

The Bull Case: Co-host Dennis Dick owns the issue and is in the long-term bullish camp. To begin with, Dick was convinced Disney was going to get the “Cramer pump” and regretted not buying more last week.

“This is a well-run company over the years, but [it] made a mistake with the Fox acquisition,” he said. “There are a lot of reasons I like Disney. The parks are killing it. This is my play for the metaverse eventually.”

Dick described Disney as "best in breed in the sector" and said he is waiting for a pullback to the lower $90 area to buy the stock. 

The Bear Case: The author of this article took dispute that Disney has been a well-run company over the years and challenged Dick's thesis, citing the company’s long-term performance in the greatest bull market of all time.

Disney ended 2016 at $104.22 and its current price of $95 has had a negative return of nearly 9%. Over that same period, the S&P 500 index went from 2,099 to its current price of 3,989 for a gain of 90%.

DIS Price Action This Week: During the premarket session on Monday, the issue peaked at $104 but came nowhere close to that level in the regular session, peaking at $100.89. After peaking at that level, it became inundated with sellers.

The Mouse weakened to end Monday’s session at $97.58. On Tuesday, it briefly traded above that level, peaking early at $97.67, and is now deep in the red. On the other hand, the S&P 500 cash index is higher by 37.50 or nearly 1% at 3,987.47 as of 1:30 p.m. EST.

Disney Moving Forward: It may be coming sooner than most expected, but the issue is getting close to filing the void in price instigated by the return of Iger. Last Friday’s high was $93.16, and the issue came close to filling that gap earlier in Tuesday's session when it reached $94.68.

On many occasions, once a gap is filled, an issue may reverse and go in the opposite direction. Further support can be found at the pair lows just under $91 from the end of last week. Of course, a possible exit point, if an investor is attempting a long, would be the current low for the move at $86.28.

The discussion on the issue from Monday’s show can be found here:

Photo via Shutterstock.