Madison Square Garden Profit Rises 40%, But Stock Takes a Hit

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Analysts say the shares have run up too much, but some see upside potential thanks to momentum at the New York Knicks and their recent signing of Carmelo Anthony.

NEW YORK - Madison Square Garden reported a 40 percent profit improvement for its fourth quarter on Friday, but its shares declined sharply in early trading as analysts said the results slightly underperformed their expectations and cited the company's high valuation.
As of 11am ET, the stock was down 7.6 percent at $27.44 after going as low as $27.11. Cable operator Cablevision Systems spun off MSG into a separate company last year.
On an earnings conference call, management said the reinvigorated New York Knicks NBA franchise saw positive trends in the fourth quarter as higher ratings have led to higher advertising rates and demand.
2010/2011 season tickets for the Knicks sold out, and there is a wait list for next season, which executives predicted would further benefit from the recent signing of Carmelo Anthony, who along with partner Alani "La La" Vazquez is set to star in VH1 reality series La La's Full Court Life this summer.
MSG management pointed to the ratings success of Anthony's recent Knicks debut as evidence of his appeal and potential to further boost ratings, advertising and ticket sales. His debut game drew the highest ratings for a regular season Knicks game in nearly 16 years, according to the company.
"While the Knicks have seen improved ratings this season, we believe there was little impact to fourth-quarter financials though team momentum could support media ad growth in 2011 and affiliate fee growth in the long term," said Morgan Stanley analyst Benjamin Swinburne. "We are encouraged by improved team performance at the Knicks and significant buzz around the recent signing of Carmelo Anthony," which could help profits over the medium term.
MSG, which includes the MSG arena, Radio City Music Hall, MSG Networks, music network Fuse and sports teams such as the Knicks and New York Rangers NHL franchise, reported a fourth-quarter profit of $32.7 million. That compared with $23.4 million in the year-ago period. The improvement came amid stronger results in the firm's media and sports units.
Revenue increased 5 percent over the year-ago quarter to $432.7 million. Sports division revenue rose 4.1 percent thanks to higher team ticket sales and increased league distribution, sponsorship and signage revenue.
"MSG fourth-quarter results missed [expectations] moderately, and the stock has exceeded our short-term $28 target," Miller Tabak analyst David Joyce said in downgrading the stock from "buy" to "neutral."
Long-term, he maintains a $35 price target though, citing "the potential upside related to Knicks performance."