Sphere Entertainment stock rises with upgrade

Posted on: October 2, 2024, 3:51 am.

Last updated on: October 2, 2024, 3:51 am.

Shares of Sphere Entertainment (NYSE: SPHR) rose sharply on Wednesday after Wolfe Research upgraded the Las Vegas entertainment venue operator.

The stock closed 7.25% higher on trading volume nearly double its daily average after Wolfe raised his rating to “outperform” from “peer perform” with a $60 price target. Wolfe acknowledged some bumps in Sphere’s development, but noted that a new deal for the Sin City property could be close to being struck.

While Las Vegas’ per-show economics for experiences have declined since opening, the venue should benefit from a larger library of content in the coming years. At the same time, the company appears to be very close to a deal for a new venue,” the research firm noted.

Eight analysts rate Sphere Entertainment, three of which correspond to “Buy” or “Strong Buy”. Another three rate the stock as a “hold,” while one rates it as a “sell.” Analysts’ average price target of $50.88 implies an upside potential of 8.16% from today’s closing price.

Sphere Entertainment could expand

Currently, Las Vegas is the only home to a Sphere venue after London shied away from it last year, and while some analysts believe the company is facing scalability issues, Wolfe doesn’t see things that way.

“Sphere’s business model and cost base are designed for growth, and Wolfe believes the Vegas venue has done more than enough to prove the economic viability of a Sphere to potential venue builders,” Wolfe added.

There is some truth to this claim. For example, UFC 306, the first sporting event held at the Sphere, surpassed both the sport’s and the venue’s previous record for single event revenue.

Sphere expansion valuable, MSG debt could go down

Based on the expectation that a second Sphere is almost certain and the probability of a third Sphere is 75%, Wolfe estimated the company’s expansion at $1.2 billion. Cities that could be home to new spheres were not mentioned in the report.

As for the debt-burdened regional sports networks (RSNs). MSG Networks and the YES network With some analysts assuming overhang on Sphere stock, Wolfe estimates that the $830 million in debt currently held by these RSNs could be reduced to $400 million.

If true, it would be welcome news for Sphere stock investors, as there is concern that Sphere may need to issue equity capital to service the RSNs’ debt.