Published on: October 2, 2024, at 03:51h.
Last updated on: October 2, 2024, at 03:51h.
Shares of Sphere Entertainment (NYSE: SPHR) experienced a significant surge on Wednesday following an upgrade from Wolfe Research, an analyst firm that covers the Las Vegas entertainment company.
The stock surged by 7.25% on trading volume that was almost double the usual daily average after Wolfe upgraded its rating from “peer perform” to “outperform,” setting a price target of $60. Wolfe acknowledged some challenges in Sphere’s performance but highlighted the potential for a new deal regarding the Las Vegas property.
Despite a decline in Vegas per show economics for Experiences post-launch, the venue is expected to benefit from a broader content library in the future. Additionally, the company is on the verge of securing a deal for a new venue,” noted Wolfe Research.
Currently, eight analysts offer ratings for Sphere Entertainment, with three recommending either “buy” or “strong buy.” Another three label the stock as a “hold,” while one rates it as “sell.” The average analyst price target is $50.88, representing an 8.16% upside from the current closing price.
Sphere Entertainment Expansion Plans
As of now, Sphere has a presence only in Las Vegas, as London rejected a similar venue last year. While some analysts express concerns about scalability for the company, Wolfe Research remains optimistic about its potential.
Wolfe analysts believe that each new Sphere venue could add $700 million in value, based on the company receiving 10% royalties from $500 million in ticket sales. They also highlighted the success of the Las Vegas property in proving the business model’s viability.
“The Sphere business model and cost structure are primed for growth, with the Vegas venue demonstrating the economic feasibility to prospective venue developers,” Wolfe added.
For instance, the first sporting event at the Sphere, UFC 306, set new records for both the sport and the venue in terms of single-event gate receipts.
Value of Sphere Expansion and Potential MSG Debt Decline
With the likelihood of a second Sphere venue almost certain and a 75% probability of a third venue, Wolfe estimates the expansion opportunity for Sphere at $1.2 billion. The report did not specify which cities could host the new Spheres.
Regarding the debt burden of regional sports networks (RSNs) like MSG Networks and the YES Network, which have been seen as potential risks for Sphere stock, Wolfe projects that the current $830 million debt could be reduced to $400 million.
If this prediction holds true, it would be positive news for Sphere investors, as concerns about the need for equity issuance to manage the RSNs’ debt have been prevalent.