Sphere Entertainment stock upgraded to buy with $48 target
Tuesday, Seaport Global Securities adjusted its stance on Sphere Entertainment (NYSE:SPHR), raising the stock’s rating from Neutral to Buy and setting a price target of $48.00. The firm’s analysis points to Sphere Entertainment as a top choice within the experience economy sector, identifying the stock as undervalued amid broader market declines.
The upgrade is anchored on the anticipation of new revenue streams for Sphere Entertainment. Seaport Global Securities anticipates that the company could announce franchise agreements in 2025 that may yield both initial franchise fees and ongoing construction consulting revenue. These projections suggest that such deals could contribute over $90 million in high-margin revenue for the year 2025.
The firm’s optimism is based on the potential of Sphere Entertainment’s franchise model, which could lead to significant financial growth. The analyst noted that while the expected franchise revenue streams remain hypothetical, the prospect of initial franchise fees coupled with construction consulting revenue presents a compelling financial catalyst for the upgrade.
Moreover, Seaport Global Securities sees further financial upside in the years following the hypothetical franchise openings, with the possibility of revenue-sharing opportunities contributing to Sphere Entertainment’s income. These opportunities are forecasted to materialize several years after the new Sphere locations commence operations.
The revised price target of $48.00 reflects a positive outlook for Sphere Entertainment’s stock, suggesting a substantial upside from the current trading levels. The firm’s analysis indicates a bullish view on the stock’s future performance, driven by strategic expansions and new business models anticipated to unfold in the coming years.
In other recent news, Sphere Entertainment Co. has reported robust financial results for the fiscal third quarter of 2024. The company’s total revenue for the quarter amounted to approximately $321 million, with an adjusted operating income of $61.5 million. A significant contribution to this success came from The Sphere venue in Las Vegas, which hosted nearly one million guests across more than 270 events.
Furthermore, Sphere Entertainment Co. has renewed the contract of its current Executive Chairman and Chief Executive Officer, James L. Dolan. Under the new terms, Mr. Dolan will receive an annual base salary of no less than $230,000 and a target bonus opportunity of at least 200% of his base salary. The renewed contract extends through June 30, 2027.
Analysts have highlighted the company’s strong performance at The Sphere venue, high guest turnout for events, and expansion into corporate events as indicators of potential growth. However, a decrease in revenue at MSG Networks (NYSE:) due to lower distribution and advertising revenue was also noted. These are some of the recent developments at Sphere Entertainment Co.
InvestingPro Insights
Following Seaport Global Securities’ upgrade of Sphere Entertainment to a Buy rating with a $48.00 price target, it’s worth noting that Sphere Entertainment has seen significant revenue growth over the last twelve months, with a staggering 598.56% increase as of Q3 2024. This growth is further exemplified by a quarterly revenue growth of 98.28% in Q3 2024, indicating the company’s strong performance in the short term. However, it is important to consider that Sphere Entertainment’s operating income margin remains negative at -24.85%, reflecting the costs associated with its rapid expansion.
InvestingPro Tips highlight that analysts expect Sphere Entertainment’s sales to grow in the current year, which aligns with Seaport’s optimistic revenue projections from potential franchise agreements. Yet, the company is quickly burning through cash and is expected to see a drop in net income this year. Additionally, Sphere Entertainment is currently not paying dividends to shareholders, which could be a consideration for income-focused investors.
With a market capitalization of $1.35 billion and a P/E ratio of 7.36, Sphere Entertainment’s stock has taken a hit over the last week, with a 1-week price total return of -9.94%. Despite these challenges, the company remains profitable over the last twelve months, and InvestingPro offers additional tips for investors looking to dive deeper into Sphere Entertainment’s financials, available at https://www.investing.com/pro/SPHR. There are 9 more InvestingPro Tips that could provide further insights into Sphere Entertainment’s financial health and future outlook.
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