Madison Square Garden: Can They Stay In the Game?

Ticker: MSGS

Rating: Overweight

Price Target: $205

Target Date: 3/2021

Highlight:

With many of our favorite reopening stocks outperforming in the past few weeks, we highlight MSG Sports where we still see 25% upside to our price target and an even more substantial bull case. Recent steps to further fortify their balance sheet only reinforce our view.

Our View:

MSG has been separating assets for years, and in April spun its Entertainment assets (including its Sphere project) out leaving MSG Sports as a pure-play sports equity. We believe, even after this week's rally, shares are trading at almost a 40% discount to the underlying value of these two franchises. We believe that 12 months from now, we are highly likely to be witnessing the start of a full season of Rangers hockey and Knicks basketball in sold-out Madison Square Garden. While this upcoming season will be negatively impacted by the pandemic, the cash burn between now and then should be modest and the balance sheet position strong.

How we're playing it:

While we do expect MSG Sports to see strong adjusted EBITDA growth, their shares trade primarily on asset values. The Jazz sold for a reported $1.6B and the Mets for $2.4B. Both of these values were more or less in line with the most recent and pre-COVID Forbes valuations. The next Forbes valuations on NHL and NBA teams are likely to be in Dec and Feb, respectively. Note, our $205 price target on MSGS assumes the shares trade at a ~20% discount to Forbes values for its two franchises.