Sphere Entertainment Stock Surges on Upgrade

Posted on: October 2, 2024, 03:51h. 

Last updated on: October 2, 2024, 03:51h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

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

Sphere Entertainment
The Las Vegas Sphere. Sphere Entertainment stock rallied after an upgrade from Wolfe Research. (Image: Medium)

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

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

Eight analysts have ratings on Sphere Entertainment with three being the equivalents of “buy” or “strong buy.” Another three rate the stock a “hold” while one grades it “sell.” The average analyst price target of $50.88 implies upside of 8.16% from today’s close.

Sphere Entertainment Could Look to Expand

For now, Las Vegas is the only home to a Sphere venue after London balked at one last year and while some analysts believe the company faces scalability issues, Wolfe doesn’t see things that way.

Wolfe analysts believe Sphere can command $700 million in value with addition of each new venue based on the company taking 10% royalties on $500 million in ticket sales. The research firm added that the Las Vegas property has proven the viability of the business model.

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

There is something to that assertion. For example, UFC 306, which was the first sporting event held at the Sphere, topped both the sport’s and the venue’s previous records for single-event gate receipts.

Sphere Expansion Valuable, MSG Debt Could Decline

Based on expectations that a second Sphere is nearly assured and the probability of a third is 75%, Wolfe valued expansion for the company at $1.2 billion. Cities that could be homes to new Spheres weren’t mentioned in the report.

As for the debt-laden regional sports networks (RSNs) MSG Networks and the YES Network that some analysts believe are overhangs on Sphere stock, Wolfe estimates that the $830 million in debt currently held by those RSNs could be pared to $400 million.

If true, that’d be welcomed news for Sphere equity investors because there’s been concern that Sphere might need to issue equity to deal with the RSNs’ debt obligations.