Morgan Stanley analyst Benjamin Swinburne maintains an Overweight rating on WWE's stock with a price target lowered from $85 to $80.
MKM Partners analyst Eric Handler maintains at Buy, price target lowered from $110 to $92.
Benchmark analyst Mike Hickey maintains at Buy, price target lowered from $90 to $79.
Morgan Stanley: 'Overreaction To Undervalued Stock'
WWE reported a disappointing third quarter coupled with management's commentary it will increase content spend in the fourth quarter, Swinburne said. This contributed to the decline, but a sell-off of more than 15% is an "overreaction to an already undervalued stock."
Beyond the concerning headlines, the U.S. rights revenues will represent around 40% of 2020 revenue and the Media segment overall is 90% of consolidated segment EBITDA. Even factoring in lower expectations for international rights increases, adjusted EBITDA could still double in 2020.
In fact, 2020 represents year one of WWE's new TV revenue profile and adjusted EBITDA growth should come in at a high-single digit rate through 2024, after which it will reset higher.
"That growth, at now 12 times EV/20E EBITDA, presents a compelling risk reward," Swinburne wrote in a note.
Related Link: Is WWE's Growth Era Down For The Count?
MKM: Temporary Issues Will Pass
WWE's woes are likely to be temporary, Handler said. Specifically, a delay in securing a MENA region TV contract is frustrating a deal can be finalized soon. Also, management's guidance of higher content investments in the fourth quarter are a function of timing and doesn't represent a shift in overall spending plans.
Nevertheless, a more conservative approach to 2020 is warranted and the research firm's adjusted OIBDA outlook was lowered from $436 million to $415. As a result, a price target reduction is warranted along with a "more measured" multiple on OIBDA estimates from 21.5 times in 2020 to 18.5 times.
Benchmark: Consistent With Management's Strategy
WWE's management has never shied away from sacrificing some near-term growth for long-term health in the entertainment business, Hickey said. At the same time "investor tension" related to presumed profitability in 2020 contributed to the stock's decline.
Management is expected to update investors in February where it will share 2020 financial guidance, a long-term strategy and updates to the business model.
WWE's stock closed Friday at $55.96 per share. The stock peaked in September 2018 around $100 per share and nearly hit that level again in April.
Photo credit: Ed Webster, Flickr
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