On Monday, Citi maintained its Buy rating on TKO Group Holdings (NYSE: TKO), increasing the stock price target to $130 from $125. The adjustment follows TKO Group's recent agreement with Netflix (NASDAQ:NFLX), which did not result in the expected rise in the company's share price.
Citi's analysis suggests that the stock's performance is being hindered by a combination of three factors: the potential EDR transaction, the ongoing UFC lawsuit, and the share sales by McMahon.
The firm has evaluated the potential impact of each of these risks on TKO Group's stock value. Despite the challenges, Citi sees a favorable risk-reward balance for TKO Group, with the current share price around $80 offering significant upside to their $130 bull case scenario. Conversely, they estimate a $65 bear case, indicating a limited downside.
Citi's commentary highlighted their surprise at the market's tepid response to the Netflix agreement, which they had anticipated would boost TKO Group's shares. They noted the specific issues that are currently weighing on investor sentiment and provided a framework for understanding the potential adverse effects of each risk on the stock's value.
The firm's maintained Buy rating reflects their confidence in TKO Group's prospects, despite the identified risks. Citi's analysis presents a view that at the prevailing equity value, TKO Group's shares have a compelling risk-reward profile that justifies the upgraded price target and optimistic outlook.
Investors in TKO Group Holdings will be monitoring the developments related to the EDR transaction, the UFC lawsuit outcome, and the extent of McMahon's share sales, as these factors will likely continue to influence the company's stock performance in the near term.
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