Madison Square Garden Trading At Discount To Intrinsic Value, Imperial Capital Says In Bullish Initiation

Shares of sporting and entertainment company Madison Square Garden Co MSG have gained more than 10 percent since the announcement of a split into two entities, but the stock remains undervalued, according to Imperial Capital.

The Analyst

Imperial Capital's David Miller initiated coverage of Madison Square Garden with an Outperform rating and $372 price target.

The Thesis

MSG boasts a unique attribute that makes the stock attractive, Miller said in a Tuesday note: it's an "asset aggregation story," and the value of all assets under its umbrella by default increase in value with economic growth. 

Traditional valuation metrics like EBIT and EPS multiples are "generally irrelevant," and the stock should be valued based on a sum-of-the-parts model as follows, the analyst said: 

• New York Knicks at $3.24 billion.
• New York Rangers at $1.56 billion.
• Entertainment business at $1.29 billion.
• Real estate (2.5 city blocks in Manhattan) at $1.22 billion.
• Air rights at $550 million.
• A "conservative" negative value to the NY Liberty, Counter Logic Gaming and Connecticut Whale franchises.
• Long-term debt of $104.3 million.
• Cash of $1.25 billion.
• Total asset value of $8.85488 billion, or $371.91 per share.

The New York Knicks aren't a post-season regular over the past 15 years, but this is "not relevant" to the valuation given the franchise's iconic status with a multigenerational fan base, Miller said.

The Rangers have been more consistent, having made the playoffs in seven of the past nine seasons, including an appearance in the 2012 Stanley Cup Finals.

MSG's stock closed Monday at $297.22, which implies it is trading "measurably below" its intrinsic value, according to Imperial Capital. 

Price Action

Shares of Madison Square Garden were trading flat early Tuesday morning.

Related Links:

As Madison Square Garden Explores Spin-Off, Jefferies Sees Opportunity

Madison Square Garden Wins New Fans With Proposed Entertainment, Sports Split

Photo by Rich Mitchell/Wikimedia.