WWE continued outperformance tied to 100% increase in US right renewal fee: MS
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World Wrestling Entertainment (NYSE:WWE) shares have jumped more than 60% year-to-date as anticipation of its upcoming rights renewals in the U.S. has driven much of the expansion, Morgan Stanley said. And with the stock trading nearly 17 times enterprise value-to-EBITDA, it's likely that any continued outperformance will be tied to a huge increase in those rights, the firm added.
"We are bullish on sports rights in general and WWE's content specifically," analyst Benjamin Swinburne wrote in a note to clients. "We do not see the rising pressures on linear and streaming platforms materially changing the supply/demand dynamics that favor rights holders. However, while we think the risk/reward skews to the upside at WWE, we believe a successful renewal is already largely baked in."
Swinburne, who has an equal weight rating and $80 price target on WWE (WWE), noted that a new deal is likely to be announced in 2023 and start to drive earnings in the fourth-quarter of 2024, with the full impact coming in 2025 and beyond. 
Swinburne's base case is that there is a 50% increase in the average annual value of the company's U.S. rights, but for the continued outperformance of the stock, that would need to increase to 100%.
A 100% increase would put WWE (WWE) at "the top of the list," save for Formula One's recent renewal in the U.S. with ESPN, the analyst noted.
"While we assume some incremental [operating expense] growth from revenue shares with talent, contracted or discretionary, we still see adjusted OIBDA margins jumping up nearly 700 bps to ~40% in 2025," Swinburne explained.
Anything less than a 50% increase would be seen as a negative, with Morgan Stanley's Swinburne noting that a 35% increase would be in a "similar range" as the NFL's new Thursday Night Football contract with Amazon (AMZN) compared to the one with Fox (FOXA).
"To be more bullish we would have to believe in a greater likelihood of our bull case playing out," the analyst added. "In addition, there is risk in a bear case with reasonable downside. In other words, WWE is not a risk-free option here."
WWE (WWE) reported third-quarter results earlier this month and tweaked its adjusted OIBDA guidance for the full-year.