On Friday, Wolfe Research adjusted its outlook on TKO Group Holdings (NYSE:TKO), reducing the price target to $107 from the previous $114, while still maintaining an Outperform rating on the company's stock. The revision follows the resolution of the WWE's US media rights controversy, which was concluded with a contract exceeding $5 billion with Netflix (NASDAQ:NFLX).
This development is expected to boost investor confidence in TKO's potential to negotiate future sales for streaming rights of WWE content, currently with Peacock, and UFC broadcasts, presently associated with ESPN.
The analyst from Wolfe Research highlighted several factors that will influence TKO's stock in the upcoming months. These include the strategic review of Endeavor, the progress on renewals for UFC on ESPN+ and WWE on Peacock, and the upcoming UFC class action lawsuit, with the trial set to commence in April.
Looking further ahead, the analyst anticipates that the combination of UFC and WWE will sustain robust revenue growth. This growth will be supported by global brand leverage through media rights sales, live event productions, sponsorships, and consumer products.
Despite the positive outlook, Wolfe Research pointed out that historical trends indicate investor skepticism towards Up-C structures, which might lead to a lower price to free cash flow (P/FCF) multiple compared to TKO's peers.
The firm has applied a 17x P/FCF multiple to the 2026 forecasted free cash flow per Class A share of $6.91, discounted back to the end of 2024. This multiple is below the average for the S&P 500, industry peers, and WWE's historical multiples.
The report also provided a performance comparison, noting that year-to-date, TKO's stock has declined by 1%, underperforming relative to its live entertainment peers, which have seen a 14% increase, and the S&P 500's 8.3% rise.
The underperformance is attributed to concerns over the UFC anti-trust lawsuit and the sale of over 13 million shares by McMahon, as well as uncertainties surrounding TKO's Up-C structure. Wolfe Research reaffirmed its Outperform rating with the revised price target of $107.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.