On Thursday, Jefferies maintained a Buy rating on TKO Group Holdings (NYSE: TKO) and increased the price target to $150 from the previous $131. This adjustment follows TKO Group's announcement of a second consecutive guidance raise for fiscal year 2024, signaling another strong quarter. The firm's revenue and adjusted EBITDA surpassed consensus expectations, underpinned by strong demand for live events, particularly noting the UFC and WWE's impressive performances.
According to Jefferies, TKO Group is well-positioned to continue its trajectory of top-line growth, margin expansion, and free cash flow (FCF) conversion. The analyst highlighted the company's potential for attractive top-line expansion and margin performance, reinforcing the decision to reiterate the Buy rating and increase the price target.
Currently, TKO Group's shares are trading at approximately 12 times FY2 EBITDA, which is below the company's historical average in the mid-teens range. Jefferies pointed out that given TKO's attractive margin profile, strong FCF generation (over 40% conversion), and a backlog of catalysts, the stock should be trading closer to its historical and peer averages, in the mid- to high teens.
The firm's confidence in TKO Group is further cemented by the belief that the shares remain attractive at current levels. The revised price target of $150 reflects Jefferies' optimistic outlook on the company's financial performance and market position moving forward.
In other recent news, TKO Group Holdings faces a delay in resolving a proposed $335 million class-action lawsuit settlement involving former UFC athletes due to a court's denial of preliminary approval. The company is exploring options, including a possible appeal and separate settlement talks for the involved cases.
Meanwhile, TKO Group Holdings has reported record-breaking attendance and revenue figures for its UFC and WWE events in the first quarter of 2024. The company also merged its UFC and WWE Live Events teams into a single unit, the TKO Live Events Strategy Team, to bolster its live events market position.
Analyst firm Citi maintains a Buy rating on TKO despite the legal challenges, indicating a possibility for a new settlement before the trial date. Other analyst firms such as Roth/MKM and Redburn-Atlantic have also maintained a Buy rating on TKO Group, with Roth/MKM increasing the price target to $130 amid the ongoing lawsuits. TD Cowen upgraded TKO's stock rating from 'Hold' to 'Buy' following strong first-quarter earnings. These are recent developments in the company's journey.
InvestingPro Insights
Following Jefferies' bullish stance on TKO Group Holdings, key metrics from InvestingPro provide an additional perspective on the company's financial health and market valuation. TKO Group's market capitalization stands at $20.22 billion, indicating a substantial presence in the market. Despite a negative P/E ratio of -43.79, reflecting past challenges to profitability, analysts are forecasting a brighter future with expected net income growth this year, as noted in one of the InvestingPro Tips.
The company's revenue growth has been particularly robust, with a 68.28% increase over the last twelve months as of Q1 2024, and an even more impressive quarterly revenue growth of 105.3% for Q1 2024. This aligns with Jefferies' observation of strong demand for live events, a segment where TKO Group has shown impressive performance. Furthermore, the company's trading near its 52-week high, at 99.33% of the peak value, signals market confidence.
InvestingPro Tips also highlight that TKO Group operates with a moderate level of debt and is trading at a high revenue valuation multiple. This suggests that while the company is managing its debt responsibly, investors are willing to pay a premium for its shares based on its revenue prospects. For readers interested in a deeper dive, there are additional tips available on InvestingPro, providing a more comprehensive understanding of TKO Group's financial standing and future potential.
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