Investors are clearly excited about Bob Iger’s return to the Magic Kingdom. Shares of Walt Disney (DIS 2.77%) rallied by 6.3% based on the news that the former CEO was coming back to lead the entertainment giant into its next chapter.
While Iger is returning to his old stomping grounds, a couple of other notable names in the corporate leadership sphere have taken up new roles recently as well. Mary Dillon, who had great success leading Ulta Beauty, is now CEO of Foot Locker (FL 3.96%). Meanwhile, former Domino’s Pizza CEO Patrick Doyle, who led the pizza chain through an incredible period of growth, is now the executive chairman at Restaurant Brands International (QSR -1.54%).
Let’s take a look at whether these three high-profile executives can lead their new companies to new highs.
Bob Iger’s second act
Shares of Disney are down about 40% year to date, and the company faces a slew of challenges. It invested heavily in streaming, but now the market is treating the streaming business model with increased scrutiny. While the service has achieved incredible subscriber growth, right now Disney+ is losing a lot of money — to the tune of $1.5 billion last quarter and $8 billion since its launch. Disney missed estimates on earnings recently largely because of these costs.
In the wake of the Iger news, analyst Michael Nathanson of MoffettNathanson upgraded Disney stock to an outperform rating for the first time in more than two years, describing him as “a constant ballast in the roughest of media waters.” Analysts from Wells Fargo echoed this sentiment, calling Iger “perhaps the best leader in media at the helm with a mandate to shake things up.”
During the 15 years of his first stint as CEO, Disney achieved record profitability and the shares gained over 500%. Its other units, like its theme park business, are posting record revenue and profit numbers already. If Iger can use his media acumen and familiarity with the company to turn Disney+ profitable, or at least pare its losses, the shares could head much higher.
Mary Dillon’s new challenge at Foot Locker
Former Ulta Beauty CEO Mary Dillon is now in charge of Foot Locker, and she has hit the ground running. Its 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 thanks to “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 investors’ concerns about it as a mall-based retailer and their worries that Nike will end its relationship with it as the sneaker maker focuses on its direct-to-consumer strategy. For these reasons, the shares trade at just 7.5 times earnings.
However, this low bar means that Dillon has ample opportunity to turn things around. During her time at Ulta Beauty, the stock’s value tripled. Dillon greatly increased Ulta’s digital sales and now will make major efforts to expand Foot Locker’s e-commerce presence. Further, the company is reducing its mall exposure by closing some mall-based locations and opening new “community” and “power” stores.
Investors’ fears of the demise of the retailer’s relationship with Nike are also exaggerated. Nike accounted for a larger proportion of Foot Locker’s sales last quarter than management expected. Dillon specifically highlighted that the company is looking forward to new Jordan-brand sneakers as part of Foot Locker’s holiday lineup. It’s also seeing sales growth from brands like New Balance, Crocs, and UGGs, showing it isn’t solely reliant on Nike.
Dillon looks like she has a plan in place, and I wouldn’t bet against her. Given her excellent track record and the low expectations that Foot Locker is coming off of before her arrival, this stock could be a serious long-term winner.
Patrick Doyle is invested in Restaurant Brands‘ success
Shares of Restaurant Brands International have outperformed the broader market year to date with a 10% gain. The stock surged this month on news that Patrick Doyle, formerly the CEO of Domino’s Pizza, was joining the company as executive chairman. Restaurant Brands owns the Burger King, Popeyes Louisiana Kitchen, Tim Horton’s, and Firehouse Subs chains.
Doyle has some serious skin in the game here — he has announced he will buy 500,000 shares of Restaurant Brands worth $60 million. Doyle will also forgo a salary and be paid in equity awards. These awards will be granted if the stock price is over $81.32 in five years, with more rewards coming if the price eclipses $122, so clearly he feels that there is achievable and significant upside here.
Restaurant Brands isn’t in a bad position. Its shares have performed well this year, and its valuation of 22 times earnings is in line with the valuations of its peers. However, there is plenty of room for Restaurant Brands to grow and for Burger King to take back its place as the U.S.’s second-largest burger chain from Wendy’s. During Doyle’s tenure at Domino’s, its shares rose by more than 2,200% in eight years. If he can achieve even a fraction of that here, shareholders should be pleased.
All three of these superstar executives are proven quantities stepping in to lead well-known, consumer-facing companies. All three have the industry expertise 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 trades at a dirt-cheap valuation, which leaves room for considerable gains as Dillon leads the company’s turnaround, and its dividend — which yields around 4.5% — is just icing on the cake. Restaurant Brands looks like a good investment given its dividend yield of over 3% and Doyle’s significant interest in the stock succeeding over the long term.
I am optimistic that Iger has what it takes to lead Disney, but I am more cautious about its stock because of the market’s waning enthusiasm for streaming, Disney’s more expensive valuation, and its lack of a dividend. Still, I wouldn’t be surprised if a year from now, Iger has brought the magic back to Disney.
Michael Byrne has no position in any of the stocks mentioned. The Motley Fool has positions in 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: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.