Market Overview

Albert Fried's Tullo Goes Overweight MSG Networks

  • Madison Square Garden finally completed its split into two companies: The Madison Square Garden Co (NYSE: MSG) and MSG Networks Inc. (NYSE:MSGN).
  • On Wednesday.
  • Albert Fried initiated coverage of MSG Networks with an Overweight rating and $28.00 price target.
  • Shares of MSG Networks were trading slightly above $18 on Thursday, down more than 9 percent.

In a report issued Wednesday, Albert Fried's Rich Tullo explains the reasons behind his Buy rating. In a cord-cutting TV ecosystem, his firm likes “Focused Networks which derive shareholder value from exclusive content tent poles [and] MSGN operates roughly three Network Channels as compared to Disney which operates 19 Cleaved Networks but in reality is charging economic rent on ESPN and ABC.” The firm expects MSG’s operating fundamentals to remain on “a strong glide path despite a recent change in investor sentiment which creates a good buying opportunity.”

Related Link: Analyst: Why Madison Square Garden Is A Better Bet Than MSG Networks

According to Tullo, some of the key levers include:

MSG Networks operates a Regional Sports Network and a sports content app, and will generate revenue from MSO Affiliate Fees and TV Advertising.

Although MSG Networks’ expenses should rise after the split, the business still looks sturdy.

Analysts at Albert Fried expect “the escalation in media rights payments (an expense) to be an AOCF headwind in F2016E. However, MSGN faces on balance revenue tailwinds in F2016E following a terrible NY Knicks Season which essentially saw the team shut down prior to the NBA All Star Break.”

Declining New York Knicks ratings were somewhat offset by stronger Rangers and Islanders ratings and thus, ad sales. Potentially stronger Knicks ratings and stable Hockey ratings should drive growth next year.

The experts like MSGN’s decision to outsource media sales to MSG (the Spinco); despite the costs for MSGN, the firm assures it “leaves legacy synergies in place.”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Latest Ratings for MSG

Apr 2020Morgan StanleyMaintainsEqual-Weight
Apr 2020Imperial CapitalMaintainsOutperform
Mar 2020Imperial CapitalMaintainsOutperform

View More Analyst Ratings for MSG
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Related Articles (DIS + MSG)

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