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Morgan Stanley on Wednesday upgraded Endeavor to overweight and set a new price target of $40 per share.
The financial firm’s bullishness on Endeavor stems from its ownership of UFC, which Morgan Stanley expects to grow significantly in coming years, as well as its talent agency WME, which is positioned to carve out a piece of the explosive market for streaming content. Endeavor stock has traded just above $30 in recent days.
“The investment positives for Endeavor are increasingly clear in our view — the value of premium content in the marketplace continues to grow as mega-platforms compete for audiences around the world,” Morgan Stanley’s Benjamin Swinburne wrote in the firm’s 2022 market outlook. “Endeavor’s two largest assets — the UFC and the WME talent agency should directly benefit from these trends and together represent ~70 percent of segment adjusted EBITDA in 2022.”
And while Endeavor had to sell most of its stake in Endeavor Content to Korea’s CJ ENM, Morgan Stanley writes that “selling its Endeavor Content business eases the path towards deleveraging, improves long-term cash conversion, and should help re-rate the talent business reported in the Representation segment.”
With regard to UFC, the financial firm thinks that the combat sport company will be able to significantly grow both its media rights revenue and its sponsorship revenue in coming years. “As a relatively nascent sport relative to other sports properties, we see a long runway for increased engagement globally, which should translate into higher scarcity value to broadcasters and streaming platforms,” Swinburne writes.
Endeavor, led by CEO Ari Emanuel, has had a big 2021, going public in an IPO in April and recalibrating its message to Wall Street to emphasize its owned sports (like UFC) and live events business. The company has also continued to acquire companies (earlier in December, it announced a new subsidiary that will own and operate Minor League Baseball teams) and is making a bigger push into sports betting through its $1.2 billion acquisition of OpenBet. The company said in its last earnings call that it will break out sports betting as its own segment in 2022.
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