The inaugural Miami Grand Prix held in mid-May attracted the largest live Formula One audience in U.S. history. That could be one of the reasons Morgan Stanley analyst Benjamin Swinburne upgraded Formula One Group (FWONK) stock on June 15.
According to ABC, the average viewership for the Miami event was $2.6 million, almost one million higher than the previous record of 1.74 million who watched Michael Schumacher win the Brazilian Grand Prix in 1995.
Swinburne raised his rating on the sports-related stock from Equal-weight to Overweight. At the same time, he raised its target price by $7 to $72. At current prices, that’s good for 18% upside over the next 12 months.
Is it enough to gain your interest? It ought to be. Here’s why.
Growth for Formula One Expected on the Top Line and Bottom
In a note to clients, Swinburne suggested that Formula One ought to be able to grow its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by 12% annually over the next four years through 2025. In addition, it projects free cash flow growth of 20% annually over the same period.
Given the viewership of Miami’s race, it’s easy to see why the analyst is optimistic about its chances. Consumers continue to flock to live events, sporting or otherwise, to feel connected to the world. I don’t imagine this will change in 2022 unless inflation affects the current desire to travel and experience the world.
As for the 10 analysts currently covering FWONK, six rates it a Buy, two believe it’s a Hold, and two have it at Underweight or Sell. The median target price is $72. As for analyst estimates for sales and earnings, it expects the top line to grow 18.5% in 2022 and 11.3% in 2023. On the bottom line, the consensus estimate for 2022 is $0.14 a share. In 2023, it jumps to $0.62 and $0.90 in 2024.
Interestingly, FWONK stock is only down 3.04% year-to-date through June 15, compared to a decline of 21.4% for the S&P 500. Formula One Group is acting as a defensive stock in the middle of one of the craziest economic environments in decades.
FWONK Stock and Liberty Media
Liberty Media (LSXMA) acquired Formula One Group in 2017 for $8 billion. This includes the assumption of debt. The race organization had been led for decades by former car dealer Bernie Ecclestone. It needed a refresh to attract new fans.
“There was an opportunity [that], by creating a better on-track product [and] on-grid experience, you could make it more appealing both to fans, because it was more competitive, and also to investors in the teams,” Liberty Media CEO Greg Maffei said, Financial Times recently reported. “That would all create a flywheel that was to our benefit as well.”
The risk Liberty Media took was real. Fast forward to today, and the bet continues to pay off.
As for the Formula One Group, it is a tracking stock that allows investors to invest in Formula One without exposing themselves to the entire Liberty Media. Certain Liberty assets, revenues, and profits of the parent are attributed to FWONK and its other share class (FWONA).
Maffei recently said when asked whether Liberty would be interested in selling Formula One Group, the CEO responded that it was nice to have a business delivering excellent results at a time when many companies are struggling with inflation.
Nice indeed.
The Sports Business Continues to Grow
It’s been a week since the Denver Broncos announced the team's sale from the Pat Bowlen Trust to a group fronted by Rob Walton, the son of Walmart founder Sam Walton. The price tag: a record $4.65 billion. The highest sale price for an NFL team previously was the 2018 purchase of the Carolina Panthers by billionaire David Tepper for $2.28 billion.
While it might seem like the 17th-wealthiest person in the world (Walton) overpaid for the Broncos, sports franchises across the globe are selling for a lot more these days. Live sporting events remain very attractive to both consumers and businesses that benefit from them.
In the first quarter of 2022, the Formula One Group grew revenues by 100% to $360 million. Its adjusted operating income before depreciation and amortization was almost double, up 90% to $112 million. The business benefited from two races in the quarter compared to one in Q1 2021.
However, with all the F1 growth opportunities in the U.S., its best days are still ahead of it. As part of your investment in Formula One Group, you also get a tiny sliver of the 11% interest it has in the Atlanta Braves, one of the hottest baseball teams in Major League Baseball at the moment.
Trading at 6x sales, which is about average for the past five years, the upside for its tracking stock is excellent.
FWONK Stock, start your engines!
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