Jefferies analysts initiated research coverage on TKO Group Holdings (TKO) with a Buy rating while setting a target price of $120.
The new price objective implies an upside of roughly 40% compared to TKO’s Friday closing price.
In September 2023, the Ultimate Fighting Championship (UFC) and World Wrestling (NYSE:TKO) Entertainment (WWE) merged in a $21.4 billion deal to form a fighting sports and entertainment powerhouse, TKO Holdings.
Following the merger, TKO made its debut on the New York Stock Exchange.
“With these assets now operating under the same roof, we believe they can generate meaningful top-line (~LDD% on avg.) and EBITDA growth (high-teens % on avg.) via rights renewals, and synergies including maximizing gate performance, cross-pollinating across fan bases, sponsorships, and other cost efficiencies (~$100M annually),” analysts at Jefferies said.
Describing UFC as the “best-in-class entertainment asset,” the analysts believe the company is well-positioned to witness robust growth and strong margin performance.
This potential is attributed to significant opportunities for expanding media rights, increased sponsorship, and the appeal of its live events.
With the addition of WWE, which boasts a global fanbase exceeding 1.2 billion people and produces engaging content, albeit with lower margins (approximately 40% compared to UFC's roughly 60%), Jefferies thinks the experienced management team is capable of achieving substantial revenue growth, improving margins, and generating significant free cash flow (FCF) in the coming years.
TKO rose 1.25% in premarket trading Monday.