Sphere Entertainment price target raised as profitability improves
Shares of Sphere Entertainment (NYSE: SPHR ) rebounded on Wednesday after plunging on Tuesday after the company forecast positive adjusted operating income (AOI) for its fiscal second quarter, given Wall Street expected a calculated loss. This performance is impressive.
Sphere detailed its earnings expectations in an 8-K filing with the U.S. Securities and Exchange Commission (SEC), prompting some positive comments from analysts covering the newly public company. Macquarie analyst Paul Golding raised his price target on the stock 6% to $34 in a note to clients on Wednesday. It rose 19.6% from the closing price on December 5. Analysts noted that U2's first edition of the Sphere proved to be a boon for operators.
"As of November 30 and since the venue opened, U2's 17 shows, most of which have been sold out, have generated total revenue of $30.7 million, or approximately $1.8 million per show," the analyst wrote. "Via "Postcards from the Earth" has played 111 performances as of November 30, approximately three performances per day, since its debut, generating approximately $44.5 million in ticket revenue, or approximately $400,000 per seat. Management noted that ticket sales The momentum continued into November with average daily ticket sales exceeding $1 million."
In late trading, Sphere shares rose 8.34%, 7.7 times the daily average.
Sphere Entertainment issues convertible bonds
Sphere Entertainment also told investors it would sell $225 million in convertible notes to fund "Sphere-related growth initiatives."
Convertible bonds differ from traditional corporate bonds in that buyers of the former can eventually convert the bonds into common stock of the issuing company. As a result, these bonds have more equity characteristics than bonds in other areas of the bond market. Sphere's convertible bonds are selling at a 3.5% interest rate and a 25% conversion premium based on Tuesday's closing price.
“Management highlighted in previous tenders that future venues would involve partners or operate on a concession basis,” Golding added. “We believe this may be a sign that discussions are progressing and that funding may be needed to ‘get in on the action’ elsewhere.”
Analysts raised Sphere's 2024-2026 AOI forecasts to US$57.3 million, US$144.6 million, and US$126 million respectively, while losses in 2024 were 9.9 times, and profits in 2025 and 2026 were US$73.6 million and US$109.7 million, respectively. .
Separately, the NHL announced Tuesday that the 2024 draft will be held in the Sphere. The league has ties to Las Vegas through the defending Stanley Cup champion Golden Knights.
Other analysts are bullish on Sphere
In addition to Macquaries Golding, other analysts are also enthusiastic about Sphere. Guggenheim's Curry Baker upgraded the stock to "buy" from "neutral." He noted that the stock could have room to rise if the Dolan family, which controls Sphere, decides to spin off Sphere Corp.'s loss-making Regional Sports Networks (RSN).
We also note that if SPHR exited the Underwater Regional Sports Network (RSN) business, it would be worth an additional $7 [per share]. We expect management to rationally evaluate RSN options next year. "Next spring/summer will likely provide more clarity on what the company plans to do with its RSN business," Guggenheim analysts noted.
MSG Networks broadcasts games between the New York Knicks and the New York Rangers, both teams controlled by Dolan.
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