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WWE (New York Stock Exchange: WWE) shares entered positive territory on Thursday as investment firm Morgan Stanley upgraded the sports-entertainment company’s rating, citing an “attractive risk reward” for the new company created from the UFC-WWE merger.
Analyst Benjamin Swinburne raised his rating on WWE (WWE) from equal weight to overweight and raised the per-share price target to $120 from $105, signaling 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 revenue, live content and “the defensive characteristics of largely contracted revenue growth.”
Swinburne added that global media and technology companies are competing aggressively for audiences and global intellectual property, especially in the form of live programming, remains “highly attractive.”
Additionally, the analyst noted that both the WWE and UFC fan bases are passionate and that WWE’s (WWE) production volume is “particularly attractive” for ad-supported models. By contrast, the UFC’s relationship with sports betting draws more toward subscription and pay-per-view models, Swinburne said.
Swinburne highlighted the new company, which will be 51% owned by Endeavor (New York Stock Exchange:EDR), also helps unlock the value of the UFC, valued at approximately $12 billion as part of the new $21.4 billion company.
Morgan Stanley reiterated its overweight rating on Endeavor (EDR) earlier this month, following the deal.
Under the terms of the deal, it values WWE (WWE) at approximately $106 per share, giving the sports-entertainment giant an enterprise value of $9.3B.
The combined company will be worth approximately $21.4 billion and should create cost synergies of approximately $50 million to $100 million when the deal closes.
Swinburne also noted that since WWE is debt-free, TKO is likely to “quickly deleverage” its balance sheet, with most of the free cash flow being used to pay down debt and achieve a net leverage ratio. . from 1 to 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). Have a HOLD rating by the authors of Seeking Alpha, while Wall Street analysts rate it as a BUY. Conversely, Seeking Alpha’s quantitative system, which consistently outperforms the market, rates WWE with a HOLD.