On Tuesday, Citi maintained its Buy rating on TKO Group Holdings (NYSE: TKO) and increased the stock's price target from $137.00 to $170.00. The stock has shown remarkable momentum, with an 80% gain year-to-date and currently trades near its 52-week high of $149.40.
The firm's analyst cited several reasons for the adjustment, including a steady outlook for World Wrestling Entertainment (NYSE:TKO) (WWE) and an updated forecast for the Ultimate Fighting Championship (UFC) rights. According to InvestingPro data, the company's current market capitalization stands at $25.1 billion.
The analyst's commentary revealed no change to the firm's view on WWE, maintaining the expected 1.4x multiple of Average Annual Value (AAV) for the U.S. WWE premium live event (PLE) renewal, which is equivalent to $275 million. The assessment of Peacock's performance during major events, such as the Olympics and WrestleMania 40, supported the decision to maintain the current forecast.
The revision of the UFC view was more significant, with the expected multiple of AAV for the U.S. UFC renewal increasing from 1.4x ($655 million) to 1.7x, bringing the forecast up to $810 million. This aligns with TKO's current EBITDA of $655.7 million, though InvestingPro analysis indicates the stock is trading at a relatively high EV/EBITDA multiple of 29.1x.
This change was influenced by two factors: the belief that the fixed-price U.S. residential pay-per-view (PPV) contract, valued at $200 million, may be too favorable for the rights holder, and the anticipation that multiple firms could bid for the UFC contract during its renewal.
The new target price of $170 per share reflects three key adjustments: the valuation timeline has been extended from 2025 to 2026, the EBITDA estimates have been increased by approximately $145 million, and the EV-EBITDA multiple has been raised from 17.5x to 18.4x. Despite this increase, the multiple still represents a discount compared to TKO's peers.
This target price change is a direct result of the updated financial forecasts and strategic expectations for TKO Group Holdings, as detailed by the Citi analyst. The company's stock price target reflects the anticipated growth and valuation in the coming years.
Based on InvestingPro analysis, the stock is currently trading above its Fair Value, with analysts expecting sales growth in the current year. Subscribers can access 15+ additional exclusive insights about TKO's valuation and growth prospects.
In other recent news, TKO Group Holdings has secured a $2.25 billion loan facility and made strides in its financial initiatives with a $2.75 billion term loan. These developments come alongside TKO's acquisition of Professional Bull Riders, On Location, and IMG from Endeavor in an all-equity deal valued at $3.25 billion.
The acquisition has instigated mixed responses from analysts, with BofA Securities maintaining a Buy rating and increasing TKO's price target to $165, while Benchmark downgraded TKO shares from Buy to Hold due to potential growth dilution concerns.
TKO Group Holdings has also settled a consolidated class-action antitrust lawsuit for $375 million. The company has been making significant progress in its strategic initiatives and financial health, with revenue of $2.78 billion and an EBITDA of $655.7 million. These are recent developments for TKO Group Holdings.
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