The end of the Hollywood strikes gives Disney's turnaround a clearer path

Published Thu, Nov 9 20232:51 PM EST

The end of the Hollywood actors' strike takes a risk off the table for Disney (DIS) — just as CEO Bob Iger's turnaround plan for the entertainment giant is starting to show real progress. SAG-AFTRA, the union representing thousands of actors, said it had reached a tentative agreement with streaming platforms and entertainment companies, including Club name Disney, ending the 118-day strike. The new three-year contract, valued at more than $1 billion, includes increases in compensation, a streaming participation bonus and new rules around the use of artificial intelligence, according to a letter to members posted on SAG-AFTRA's website. In the coming days, members will vote on whether to accept the deal. Prior to the announcement, Disney CEO Bob Iger told CNBC that the strike's impact on the business had so far been "negligible." However, he said a quicker resolution would limit the impact on next summer's box office calendar. The news came just hours after Disney reported better-than-expected 2023 fourth-quarter earnings , highlighted by a beat on Disney+ core subscriber additions and continued strength in the theme parks. Investors welcomed the upbeat news, sending shares of Disney up 7.5% on Thursday to $90 a piece. DIS YTD mountain DIS stock performance year-to-date. Jim Cramer was encouraged by Disney's progress in cutting costs: Iger announced it was now on track to achieve roughly $7.5 billion in cost savings, $2 million more than what was targeted earlier this year. But the biggest upside surprise came in the form of Disney's fiscal year 2024 free cash flow guidance of $8 billion. That is well above estimates of $6.7 billion, according to FactSet. With Disney's strong quarterly cash flow and healthy balance sheet, Jim said he expects a stock buyback as soon as next year. "I'm all in on Disney … I think it's a strong buy," Cramer said Thursday. To be sure, Disney is still suffering from the weakness in linear television as viewers cut the cord for streaming services. That migration puts pressure on segment ad revenues. Still, Disney continues to invest in building out a profitable, growing DTC business. The company remains committed to its guidance of DTC reaching profitability in the fourth quarter of fiscal 2024. Management said it is also looking to "turbocharge" its experiences segment, which grew 12.5% over the same quarter a year ago. One silver lining of the strikes is it actually helped Disney in lowering short-term production expenses as workers walked off the job and onto the picket lines. Now with the actors' strike over that "should help the studios summer 2024 film slate and the second half of the current TV season," Loop Capital said Thursday. Morgan Stanley, in a separate note Thursday, said there is now "more clarity" on film releases over the next two fiscal years, but said that "content sales segment is being impacted by the long production shut down." In the meantime, we're optimistic about Iger's longer-term initiatives, including building ESPN into the best digital sports platform and finding strategic partners to scale its growth. The market is "responding correctly" to Disney's progress so far, Jim said. (Jim Cramer's Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Visitors wearing emblematic Mickey Mouse and Minnie Mouse ears walk in front of the Sleeping Beauty-inspired castle at Disneyland Paris, Oct. 16, 2023.

Ian Langsdon | Afp | Getty Images

The end of the Hollywood actors' strike takes a risk off the table for Disney (DIS) — just as CEO Bob Iger's turnaround plan for the entertainment giant is starting to show real progress.