NEW YORK (CNN/Money) -
Six months ago Wednesday, Michael Eisner's world teetered.
On Feb. 11, Comcast Corporation, the country's largest cable operator, launched a hostile bid for The Walt Disney Company, where Eisner has served as chairman and CEO for two decades. The $54 billion unsolicited offer fueled a simmering uprising by dissident shareholders upset over Disney's sluggish growth in recent years.
Eisner, 62, lost a battle when he was forced to relinquish the chairman title in March. But he held onto his job as CEO.
And today, not long after his job seemed hopelessly imperiled, Eisner appears to be winning the war against critics.
The cacophony surrounding Eisner's fate at Disney has "pretty much quieted down," said Paul Kim, an independent media analyst with Tradition Asiel Securities. "The [dissident] camp has completely run out of momentum."
What changed?
For one thing, analysts now say that the need for strong leadership following Comcast's failed takeover attempt only strengthened Eisner's standing at Disney. For another, the media and entertainment titan has reported back-to-back quarters of solid earnings growth, reflected by a rebound at its U.S. theme parks and a surge in home video sales brought on by the blowout success of "Finding Nemo," "Pirates of the Caribbean" and other 2003 movie releases.
"The company has executed on its promises for this year, kept upping earnings growth, and done a decent job in a very tumultuous period," said Kim.
Expect more rosy news Tuesday afternoon. Disney (DIS: up $0.33 to $22.27, Research, Estimates) is due to release third-quarter earnings after trading ends for the day. Wall Street analysts surveyed by Thomson First Call are forecasting earnings per share of 27 cents, a 40 percent hike from the same period last year, on comparable revenue growth of 16 percent, to $7.1 billion.
"At this point I would say [Eisner's] job is safe," added David Mantell, a Loop Capital Markets analyst who covers media and entertainment stocks. Mantell, like Kim of Tradition Asiel, does not own Disney shares nor does his firm have investment banking ties to the Burbank, Calif.-based company.
Wall Street bets now put Eisner at Disney's helm at least through 2006, when his current contract expires.
The heat is still on
Job security doesn't mean the pressure is off Eisner. For all the growth this year, the price of Disney shares is nearing 52-week lows.
And for all the kudos he gives Eisner & Co. for weathering the recent storm, Kim still rates Disney a sell. "The stock is at a premium valuation right now," said Kim. "Compared to its peers, it's got the worst fundamentals."
Of Disney's four main business lines -- media, theme parks, movies and consumer products -- analysts will be watching closely third-quarter results for Disney's film unit as well as tourism levels at its California and Florida amusement parks.
When it comes to Disney movies, the company has released a steady string of big-budget flops this year, among them "The Alamo" and "King Arthur." Hopes that the jinx would end with the recent debut of "The Village" were dashed when ticket sales for the M. Night Shyamalan horror flick plunged 67 percent during its second weekend.
Disney is banking on "The Incredibles," due out in early November, to help salvage its year in movies. Box office analysts expect the computer animation flick about human superheroes -- the next-to-last feature film under a co-production agreement between Disney and Pixar Animation Studios -- to be a hit.
Disney's dismal 2004 at the box office is likely to be masked by spillover from the blockbuster 2003. Management has cited robust international DVD sales of 2003 films, up 18 percent in the second quarter compared to a year earlier, as a key driver of company revenues.
Looking ahead, there are concerns about what this year's duds mean for Disney's DVD pipeline. "The one area investors could count on is home entertainment and all of the DVD sales," said analyst Kim. "But this year has been so abysmally bad, you're not going to have the same follow through in '05."
Disney can weather a bad year at the box office. What's front and center on investors' minds, however, is the fate of Disney's relationships with Pixar and its Miramax studio. Contract renewal talks with Pixar, which has a five-film co-production deal with Disney, have been officially on ice since earlier this year. Eisner is also locked in tense negotiations with Miramax founders Bob and Harvey Weinstein over a new employment deal for the sibling duo.
Disney can absorb the loss of Miramax easier than it can withstand the loss of Pixar. But letting go of both, analysts say, would severely weaken Disney's movie operations.
Theme park tourism as bellwether
When it comes to measuring consumer spending, nothing reveals popular sentiment like roller coaster lines.
Following a severe post-9/11 drop in theme park visitors, Walt Disney World and Disneyland resorts in Florida and California have shown signs of life in 2004. Theme park revenues, including occupancy at Disney-owned hotels, were up 9 percent in the first six months of 2004 compared to the same period a year earlier. Operating income rose 5 percent.
The peak summer season kicked off with the end of the school year in June and analysts expect Disney to post double-digit percent increases in third-quarter visitors.
But Richard Greenfield, an analyst with Fulcrum Global Partners, questioned whether Disney theme park attendance was softening relative to a year ago. In a recent report to investors, he cited "significant discounting" last year aimed at drawing locals to company resorts in Florida and California.
Independent stock analyst Dennis McAlpine thinks another factor could contribute to slower theme park growth.
"Given the new threat of terrorism, there has be some concern that new bookings are not holding up," said McAlpine.
A revitalized Eisner might just have something to say about that.
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