On Tuesday, Guggenheim analysts maintained a Buy rating on Sphere Entertainment (NYSE:SPHR) with a price target of $64.00, representing a potential 52% upside from the current price of $42.18. According to InvestingPro data, analyst targets for the stock range from $36 to $64, with the stock showing strong price momentum despite challenging fundamentals.
The focus of their commentary was on the recent breakdown in negotiations between MSG Networks (NYSE:MSGN) and Altice USA, which took place on the previous night. The analysts highlighted the significant impact of the impasse, noting that Altice accounts for approximately 33% of MSG Networks' distribution revenue. This is estimated to be around $127 million for the fiscal year 2025, which could result in a daily revenue loss of about $350,000 for MSG Networks.
The failure to reach an agreement with Altice could have dire consequences for MSG Networks, potentially erasing all of its Adjusted Operating Income (AOI) for FY25 and potentially leading to bankruptcy for the Regional Sports Network (RSN) business. The analysts pointed out that the RSN business is currently carrying $829 million in debt, which is not secured by Sphere Entertainment (SPHR).
InvestingPro analysis reveals concerning liquidity metrics, with a current ratio of 0.56 and short-term obligations exceeding liquid assets. Want deeper insights? InvestingPro offers comprehensive financial health scoring and detailed metrics for over 1,400 US stocks. The workout period with lenders has been extended until January 10th, providing some time for the situation to be resolved.
The hard-line stance taken by Altice management on RSN carriage fees is cited as a reason for concern regarding a permanent carriage drop. According to Guggenheim analysts, a permanent drop could force Sphere Entertainment to abandon the RSN business.
They believe that such a move could ultimately clarify the RSN situation and be beneficial for the shareholders of Sphere Entertainment in the long term, as it would result in a "positive/clean outcome." Despite these challenges, the company has demonstrated strong revenue growth of nearly 100% in the last twelve months, though profitability remains a concern with negative earnings per share of -$11.19.
In other recent news, Sphere Entertainment has extended its forbearance agreement with lenders to January 2025, providing additional time to meet its financial obligations. The company has experienced significant changes in its executive team, with David F. Byrnes leaving his position as Executive Vice President, Chief Financial Officer, and Treasurer, and Gregory Brunner stepping in as interim principal financial officer.
The annual meeting of stockholders resulted in the election of several directors and the ratification of the company's independent registered public accounting firm.
Analyst firms Benchmark and Guggenheim have revised their stock targets for Sphere Entertainment due to a 16% sequential drop in third-quarter revenue and a substantial operating loss of $26 million. Despite these financial challenges, the company reported first-quarter fiscal year 2025 revenues of $228 million, with its Las Vegas venue generating about $127 million in revenue from over 225 events. As part of its strategic plans, Sphere Entertainment is expanding globally with a new venue in Abu Dhabi.
These developments follow Sphere Entertainment's announcement of significant financial challenges, including a substantial operating loss and a decline in revenue. Analysts from Guggenheim anticipate Sphere Entertainment's financial outcomes to improve in fiscal years 2025 and 2026, despite these challenges.
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