Market Commentary: Billionaire’s Top Holding Will Shock You

Imagine being a billionaire and having to build a portfolio that will stand the test of time. How many stocks would you pick and how much would you put into teach of them? If you’re Nelson Peltz with $6 billion of capital under management the answer is 40.5% in a single stock.

Rounding out his portfolio are just 7 other holdings, suggesting that, when Peltz invests, he goes all in on a few positions that he has strong conviction on. But one stock above all has grabbed his attention and that’s the one we’ll focus on today. It’s Mickey’s Mouse House.

Key Points

• Billionaire Nelson Peltz has made a massive single stock bet in his already enormous stock portfolio.
• It’s not clear from a dividend, multiples or valuation perspective that Disney is a screaming buy.
• Peltz appears to have spotted untapped potential in Disney to leverage its brand advantage and Originals catalog to substantially improve financials.

What Does Peltz See?

Nelson Peltz is already the Chairman of the Board of Wendy’s, which represents 21.2% of his portfolio. But his largest stake is Disney, representing almost twice as big a position as any other holding in his portfolio. So what is it that he sees in Disney to warrant so much conviction that it is undervalued?

It’s no secret that Disney has been plagued with controversy, not least in its battles with Florida Governor DeSantis. And sentiment has clearly shifted bearish on the stock with 11 analysts revising their guidance lower for the upcoming period.

So too is it hard to make a case that the stock is undervalued on a multiples basis given that the price-to-earnings ratio is 76x.

Even the dividend yield of 0.6% doesn’t make a compelling argument that income-seekers will flock to it anytime soon.

But with a $177 billion market capitalization and among the most prestigious brands in the world, Peltz has sniffed an opportunity. The brand value alone of Disney has been estimated at $49.5 billion according to Statista. So Peltz appears to have identified that the combined operations excluding the brand of Disney are trading at just shy of $130 billion.

Is Disney A Deal?

With revenues of $88.8 billion, Disney is trading at a low multiple to sales and has ample opportunity to squeeze out more profits to its bottom line, which in turn would vastly improve its profitability and cause that sky high P/E ratio to look a whole lot more attractive.

On a valuation basis, a cash flow forecast makes the case for material upside too. Fair value sits at close to $115 per share, though it should be noted that analysts consensus is more pessimistic at $102 per share.

Clearly, where Nelson sees opportunity is not necessarily the fact that Disney appears to be a deal from a cash flows perspective but that its catalog and operations spanning from cruise ships to theme parks holds untapped potential to vastly improve the financials.

The jury is still out on whether Peltz’s bullish investment thesis will play out. But Bob Iger has succeeded in substantially boosting earnings before interest and taxes over the past eight quarters versus the prior eight. If that trend continues, expect Wall Street to get more excited about the prospects of Disney for the long haul, and with those tailwinds Peltz is likely to ride a big winner.