On Thursday, UBS initiated coverage on shares of Liberty Formula One (NASDAQ: FWONK) with a Neutral rating and set a price target of $85.00. The firm's analysis suggests that while Formula One has seen a significant increase in its monetization due to growing popularity beyond its traditional European markets, future growth is expected to slow down.
The firm noted Formula One's status as a global sports entity that has benefited from the rising demand in the rights marketplace and the experience economy. The sport's revenue and OIBDA (Operating Income Before Depreciation and Amortization) have seen substantial growth, particularly due to its expanded appeal internationally.
However, UBS anticipates a deceleration in growth, citing several factors such as lower operating leverage on team payments, limited potential for race promotion in the near term (NT), and a more modest increase expected from the upcoming U.S. rights renewal. These elements contribute to the projection of a slowdown in the pace of Formula One's financial performance.
The firm forecasts that primary F1 revenues and OIBDA will grow at an 8% and 12% compound annual growth rate (CAGR) respectively from 2024 to 2026, which is slightly below the street's expectations of an 8%/14% CAGR. This is in contrast to the 16%/20% CAGR experienced between 2022 and 2024.
Finally, UBS pointed out that Liberty Formula One's multiple is near the low end of its historical range, trading at 21 times OIBDA compared to a historical range of 19-28 times. The valuation is deemed appropriate by the firm in light of the anticipated normalization of growth rates.
In other recent news, Liberty Formula One reported second-quarter earnings that did not meet expectations, leading Rosenblatt Securities to adjust its price target for the company to $91 from $93 while maintaining a Buy rating. The earnings miss was mainly attributed to the mix of races held during the quarter. Despite the price target reduction, Rosenblatt Securities remains optimistic about Liberty Formula One's prospects, citing the company's high free cash flow conversion rate, strengthening sponsorship cycle, increasing promotion fees, and an improving margin profile for the Las Vegas market.
On the other hand, Liberty Media Corporation reported a solid second quarter in 2024, with significant progress across its various business segments. The company's transaction with SiriusXM is nearing completion, pending regulatory approvals. The Atlanta Braves, part of Liberty Media Corporation, announced plans for stadium upgrades and showcased strong player performance.
Furthermore, Liberty Media expects solid margin and cash generation for the remainder of 2024 and is optimistic about sponsorship opportunities and the growth of its various segments.
InvestingPro Insights
Recent data from InvestingPro adds depth to UBS's analysis of Liberty Formula One (NASDAQ: FWONK). The company's market capitalization stands at $18.68 billion, reflecting its significant presence in the sports entertainment industry. FWONK's revenue growth of 43.43% over the last twelve months as of Q2 2024 aligns with UBS's observation of substantial growth in recent years. However, the P/E ratio of 62.02 suggests the stock is trading at a high earnings multiple, which could be a point of concern as growth is expected to slow.
InvestingPro Tips highlight that FWONK is trading near its 52-week high, with a price that is 96.91% of its 52-week peak. This supports UBS's view that the stock's valuation may be appropriate given the expected normalization of growth rates. Additionally, the company's profitability over the last twelve months and analysts' predictions of profitability this year reinforce its strong financial position.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide valuable insights into FWONK's investment potential.
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