WWE (NYSE:WWE) shares edged into positive territory Thursday as investment firm Morgan Stanley upgraded the sports entertainment company, citing an “attractive risk-reward” for the new company created from the UFC-WWE merger.
Analyst Benjamin Swinburne raised his rating on WWE (WWE) shares to overweight from equal-weight and boosted the per-share price target to $120 from $105, noting that the new company, which will trade on the New York Stock Exchange under the ticker symbol “TKO,” is likely to benefit from the “secular tailwinds” for sports and entertainment media rights revenues, live content and “the defensive characteristics of largely contracted revenue growth.”
Swinburne added that global media and tech companies are aggressively competing for audiences and global intellectual properties, especially that in the form of live programming, are still “highly attractive.”
In addition, the analyst noted that both fan bases for the WWE and UFC are passionate and WWE’s (WWE) volume of production is “particularly appealing” to ad-supported models. Conversely, the UFC’s relationship with sports betting appeals more towards subscription and pay-per-view models, Swinburne opined.
Swinburne noted the new company, which will be 51% owned by Endeavor (NYSE:EDR), also helps unlock the value of UFC, valued at roughly $12B as part of the new $21.4B company.
Morgan Stanley reiterated its overweight rating on Endeavor (EDR) earlier this month, following the deal.
According to the terms of the deal, it values WWE (WWE) at roughly $106 per share, giving the sports entertainment giant an enterprise value of $9.3B.
The combined company will be worth roughly $21.4B and should create roughly $50M to $100M worth of cost synergies when the deal is closed.
Swinburne also pointed out that since WWE (WWE) is debt-free, TKO is likely to “rapidly de-lever” its balance sheet, with the majority of free cash flow being used to pay down debt and get it to a net leverage ratio of 1 by the end of 2024.
Investment firm Benchmark downgraded WWE (WWE) after the deal, citing an “aggressive valuation” of the new company.
Analysts are largely cautious on WWE (WWE). It has a HOLD rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha’s quant system, which consistently beats the market, rates WWE a HOLD.
WWE rises as Morgan Stanley upgrades on ‘attractive risk-reward’
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