Endeavor Group Holdings Inc., the Los Angeles–based entertainment powerhouse and owner of the William Morris Agency, sports and modeling agency IMG, and mixed-martial-arts outfit UFC, is well-positioned for a post-COVID world, but the stock is looking fully valued after gaining about 26% since its IPO, analysts said Monday.
“Overall, while we recognize the power in Endeavor’s platform, we acknowledge the company operates in highly competitive lines of business, and its high leverage may limit M&A optionality,” wrote JP Morgan analysts led by Alexia S. Quadrani.
Since the company went public on April 29, the stock /zigman2/quotes/214253748/composite EDR +0.15% has captured those positives, she wrote, “so we see more limited upside near term. Longer term, as management executes on its outlined strategy and delevers the balance sheet, we see room for potential multiple expansion ahead.”
JPMorgan initiated coverage of the stock with a neutral rating and $34 price target, which is 17% above its current price.
For a deeper dive into Endeavor’s financials: William Morris parent Endeavor’s IPO: 5 things to know about the entertainment giant
Goldman Sachs also started coverage of the stock with a neutral rating and set a 12-month price target of $29, where it was trading on Monday. Goldman analysts led by Brett Feldman agreed that Endeavor is set to benefit from secular trends in the media industry and opportunities to grow via M&A.
But the stock is already valued at a premium to peers, based on Goldman’s sum-of-the-parts analysis, as well as its growth-adjusted valuation screen.
“We therefore initiate with a neutral rating and will look for a more attractive entry point, or greater visibility into upside to our base case forecasts througheither organic growth or M&A,” the analyst wrote in a note to clients.
Endeavor’s plan to take full control of UFC will help drive revenue at its owned sports properties division, one of three reporting segments, along with events experiences and rights and representation, said Feldman.
UFC accounts for about 95% of the owned sports segment and drives about 50% of its consolidated EBITDA, or earnings before interest, taxes, depreciation and amortization, and about 50% of Goldman’s SOTP valuation. The owned sports segment accounted for 20% of 2019 revenue, the year before the pandemic.
Events, experiences and rights accounted for43% of 2019 revenue, Goldman estimates, with Endeavor generating revenue by monetizing events, collecting tuition fees at its sports academy, reselling distribution rights to content, and selling live video and data feeds to sportsbooks.
“This is EDR’s most diverse segment and the business we see as most likely to expand inorganically via further M&A,” said Feldman.
Representation accounted for the remaining 37% of 2019 revenue, mostly from William Morris and IMG licensing.
Morgan Stanley analyst Benjamin Swinburne said he is most bullish on UFC and William Morris and expects both to generate EBITDA growth in the high-single-digit to low-double-digit range in the medium term.
“The UFC benefits from scarcity value given its global appeal and the secular trends in live sports,” Swinburne wrote in a note to clients. “It is also a business with healthy top-line growth and substantial cash generation.”
As the world’s leading talent agency, William Morris offers investors exposure to rising monetization options for talent during an elevated cycle of content spendingacross media.