Investors are clearly excited about Bob Iger’s return to the Magic Kingdom. Stock Walt Disney (DIS 2.77%) rose 6.3% on news that the former CEO is returning to lead the entertainment giant in its next chapter.
While Iger is returning to his old positions, several other big names in corporate leadership have also recently taken on new roles. Mary Dillon, who had great success as a host Ulta Beautyis now CEO Foot locker (Florida 3.96%). Meanwhile, former Domino Pizza CEO Patrick Doyle, who led the pizza chain through an incredible period of growth, is now executive chairman at Restaurant Brands International (QSR -1.54%).
Let’s see if these three top executives can take their new companies to new heights.
Second act by Bob Iger
Disney shares are down about 40% since the start of the year and the company is facing a lot of problems. The company has invested heavily in streaming, but now the market is looking at the streaming business model with increased attention. While the service has achieved incredible subscriber growth, Disney+ is losing a lot of money right now — $1.5 billion last quarter and $8 billion since launch. Disney has skipped revenue estimates lately, mostly because of these expenses.
Following the Iger news, analyst Michael Nathanson of MoffettNathanson upgraded Disney’s stock to Outstanding for the first time in more than two years, calling it “a constant ballast in the media’s roughest waters.” Analysts from Wells Fargo echoed this sentiment, calling Iger “perhaps the best media leader at the helm with the power to shake things up”.
In his first tenure as CEO for 15 years, Disney posted record profits and stocks rose over 500%. Its other divisions, such as the theme park business, are already posting record revenue and profit figures. If Iger can use his media acumen and familiarity with the company to make Disney+ profitable, or at least cut its losses, the stock could rise significantly.
Mary Dillon’s New Challenge at Foot Locker
Former Ulta Beauty CEO Mary Dillon is now in charge of Foot Locker, and she’s taken the plunge. Her first earnings report under her leadership was well received as the company reported same-store sales growth of 0.8% against an expected decline of more than 5%. Foot Locker also raised its 2022 outlook on “strong momentum” during the quarter.
Those results were positive, but the stock is still down more than 30% in 2022, and indeed, it has struggled for years due to investor concerns about him as a mall retailer and their concerns that Nike will end its relationship with him as the sneaker maker focuses on its direct-to-consumer strategy. For these reasons, the stock trades for only 7.5 times earnings.
However, this low bar means Dillon has every opportunity to make a difference. During her tenure at Ulta Beauty, the share price tripled. Dillon has significantly increased Ulta’s digital sales and will now make a big effort to expand Foot Locker’s e-commerce footprint. In addition, the company is reducing its mall footprint by closing some malls and opening new “community” and “energy” stores.
Investors’ fears about the retailer’s breakup with Nike are also exaggerated. Last quarter, Nike accounted for more Foot Locker sales than management had expected. Dillon specifically emphasized that the company is looking forward to the introduction of new Jordan-branded sneakers as part of the festive Foot Locker line. There has also been an increase in sales of brands such as New Balance, crocs, and UGG, showing that it’s not just up to Nike.
Dillon looks like she has a plan and I wouldn’t argue with her. Given its excellent track record and the low expectations placed on Foot Locker prior to its arrival, this stock could be a serious long-term winner.
Patrick Doyle invests in Restaurant brands‘ success
Shares of Restaurant Brands International have outperformed the entire market since the start of the year, up 10%. Shares rose this month on news that Patrick Doyle, former CEO of Domino’s Pizza, is joining the company as executive chairman. Restaurant Brands owns Burger King, Popeyes Louisiana Kitchen, Tim Horton’s and Firehouse Subs.
Doyle has a serious skin in this game – he announced that he would buy 500,000 shares of Restaurant Brands worth $60 million. Doyle will also waive his salary and be rewarded with shares. These rewards will be given if the share price exceeds $81.32 within five years, and additional rewards will come if the price exceeds $122, so he clearly feels that there is achievable and significant upside potential here.
Restaurant Brands is not in a bad position. Its stock has performed well this year and its valuation is 22 times earnings, in line with peers’ valuations. Still, restaurant brands have room to grow, with Burger King reclaiming its place as the second-largest burger chain in the US. Wendy. During Doyle’s tenure at Domino’s, his stock rose over 2,200% in eight years. If he can achieve at least some of that here, the shareholders will be happy.
All three of these top executives are proven leaders who have led well-known consumer-facing companies. All three have industry experience and business acumen to lead their new companies to new heights.
Of the three stocks, I find Foot Locker and Restaurant Brands to be the most compelling opportunities. Foot Locker is trading at a very cheap valuation, leaving room for significant gains as Dillon leads the company’s recovery and its dividend of around 4.5% is just the icing on the cake. The restaurant brands look like a good investment given the over 3% dividend yield and Doyle’s significant interest in the stock’s long-term success.
I’m optimistic that Iger has what it takes to lead Disney, but I’m more cautious about his stock due to waning market enthusiasm for streaming, Disney’s higher valuation and lack of dividends. However, I wouldn’t be surprised if Iger brings the magic back to Disney in a year.
Michael Byrne has no positions in any of the stocks mentioned. Motley Fool holds positions and recommends Domino’s Pizza, Nike, Ulta Beauty and Walt Disney. The Motley Fool recommends Crocs, Foot Locker and Restaurant Brands International Inc. and recommends the following options: $145 long calls in January 2024 at Walt Disney and $155 short calls in January 2024 at Walt Disney. Motley Fool has a disclosure policy.