World Wrestling Entertainment, Inc. (NYSE:WWE) shares traded lower on Tuesday despite a bullish initiation by a major Wall Street firm.

The Analyst

Wells Fargo analyst Steven Cahall initiated coverage of WWE with an Outperform rating and $94 price target.

The Thesis

Cahall said WWE represents a secular growth story that is a "rare and precious stone" in media.

“We’re bearish on sports rights as we see value accruing to leagues at the expense of the ecosystem, but WWE is the league and therefore, a rare way to play this theme,” Cahall wrote in a note.

In addition, WWE’s effort to pivot to a direct-to-consumer model has positioned it well to take advantage of high engagement levels with a relatively small audience compared to competitors like Netflix Inc (NASDAQ:NFLX) and Walt Disney Co (NYSE:DIS).

Wells Fargo is projecting 18% annual content rights revenue growth through 2025. Cahall said free cash flow should grow from $154 million in 2018 to between $220 million and $230 million annually from 2020 through 2023.

Cahall said a potential buyout will serve as a floor under the stock’s valuation in the near term. Although he has no specific knowledge of potential deals, WWE’s content and modest $6 billion market cap make it an attractive target for large media companies.

Benzinga’s Take

WWE has differentiated content, a digital marketing strategy and a healthy balance sheet. The only potential question mark for investors is just how much of the bullish thesis is already priced into the stock, which is up 243% in the past three years.

Do you agree with this take? Email [email protected] with your thoughts.

Related Links:

How WWE Could Further Monetize NXT Following TV Deal

WWE Moving NXT To USA Network Could Disrupt AEW, Fox Plans

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