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Company Valuation and Risk Disclosures
Activision Blizzard, Inc. (ATVI, Buy, $92 PT)
Valuation: Our $92 PT is 26x our average 2020-2022 EPS estimate of $3.52.
Risks: Our numbers assume meaningful bookings from upcoming Blizzard titles Overwatch 2 and Diablo 4. Any delay in production and release would have a direct impact on our numbers. Pandemic-related tailwinds abate faster than expected and are one-time in nature. Warzone’s success as an FTP offering ultimately cannibalizes sales of this fall’s newest COD premium release, Cold War. Activision’s upcoming releases, which are based on IP that originated 20+ years ago, could fail to resonate with present day players. CoD Mobile fails to maintain its current monetization trajectory over an extended period of time. Poor execution of in-game monetization could alienate consumers. Inability to develop advertising business and non-Candy Crush IP for King.
AMC Entertainment Holdings. (AMC, Sell, $.01 PT)
Valuation: Our $0.01 one-year price target is based on 8x 2022E adjusted EBITDA of $612 million, with AMC currently trading at over 15x 2022E adjusted EBITDA
Risks: Movie attendance returns (and sustains) at a level significantly greater than 2019, raising EBITDA to record highs. Studios do not maintain and expand upon significant window changes post-pandemic. AMC is able to continue working out relaxed debt/rent terms, pushing large cash outlays further out and delaying potential bankruptcy. Exhibitors are able to pivot the business in an unforeseen and non-traditional way that creates new revenue streams, increasing cash flow.
American Tower (AMT, Buy, $257 PT)
Valuation: Our $257 price target is based on a sum-of-the-parts that implies a blended 26.6x multiple on our 2022 Cash EBITDA estimate. We rely on multiple expansion to achieve our price target. We estimate AMT’s current stock price implies 32.0x our 2021 domestic tower Cash EBITDA estimate. Our price target implies the multiple on the domestic tower business will expand to 35.0x on our 2022 estimate. Our price target also implies a 2022 FCF yield of 3.2% and a 2022 AFFO multiple of 26x on 6% growth.
Risks: Risks that are specific to American Tower include its exposure to India where it is still working through operator consolidation. It also faces political and currency risk in other emerging markets where it operates.
Anterix (ATEX, Buy, $64 PT)
Valuation: Our valuation and $64 price target is based on a present value of spectrum lease free cash flow based on the assumptions mentioned above. We start taxing our cash flow at 28% starting in 2025, but believe there are opportunities to reduce this impact to our free cash flow estimates. We use a 15x multiple on our free cash flow estimate in 2027, the year we expect it to reach 50% of spectrum leased and hit a steady state of incremental sales bridging it to lease renewal activity. Our cost of equity is 8%. We assign no incremental cost or value to its services business. Please contact us for our financial model.
Risks: Risks include lengthy sales cycles with utility customers, competitive spectrum lease opportunities from 600 MHz spectrum owners, competitive connectivity options from shared wireless or satellite operators, and inability to negotiate the terms to clear existing spectrum users.
Crown Castle (CCI, Buy, $183 PT)
Valuation: Our $183 price target is based on a sum-of-the-parts that implies a blended 30.5x multiple on our 2022 Cash EBITDA estimate. We rely on multiple expansion in Crown’s Macro tower business and contraction in its Fiber business to achieve our price target. We estimate the current stock price implies 31.5x our 2021 Domestic tower and 18.0x our 2021 Fiber Cash EBITDA estimates. Our price target implies the Macro tower multiple will rise to 35.0x and the Fiber multiple will contract to 16.0x on our 2022 estimates. Our price target also implies a free cash flow yield of 1.9%. This is lower than its peers due to the capital intensity of its Fiber business. It also implies a 2022 Adjusted AFFO multiple of 31x on growth of 8%.
Risks: Crown Castle’s company specific risks are the most notable. Crown materially outperformed the S&P 500 market in 2015, while its peers lagged the index primarily because of the small-cell, mmWave narrative pushed by Verizon following the AWS-3 auction. It underperformed its peers for the next four years as the pace of small cell growth failed to materialize in its reported results. We believe the deployment of C-Band spectrum on macro towers will limit the ability for small cell deployments to materially accelerate for several years. We believe it’s hard to argue for more than a 16x multiple on its Fiber business, given that 70% of revenue is from traditional enterprise fiber services and we remain skeptical about any acceleration of small cell growth.
Fubo (FUBO, Sell, $6.50 PT)
Valuation: Our $6.50 one-year price target is based on a 7.5x multiple of 2025 advertising contribution margin discounted back at 15% for four years.
Risks: (1) Fubo is able to grow subscribers significantly above our forecast of 2 million by 2025. (2) Fubo is able to grow advertising revenue to far above $20/sub/month by 2025. (3) Fubo is able to bring down the price of programming or drop programming without losing subscribers or impacting subscriber growth. (4) Fubo figures out a way to generate meaningful revenue from sports betting. (5)Fubo is acquired by one of its vMVPD peers who looks to accelerate consolidation.
Iridium (IRDM, Buy, $50 PT)
Valuation: Our $50 price target is based on a sum-of-the-parts. We value the operating business based on a 4% free cash flow yield on our 2022 free cash flow estimate of $244 million. That supports a $46.50 price target. We then add an additional $3.50 to our price target to reflect the present value of future distributions from Aireon, which we expect to commence in 2025. Our $50 price target implies 21.0x our 2022 Cash EBITDA estimate vs its current multiple of 17.5x our 2021 Cash EBITDA estimate. The $46.50 “base” price target implies 19.7x our 2022 Cash EBITDA estimates.
Risks: Iridium recently upgraded its satellite fleet, which operates on a 10+-year capex cycle, so they could be rendered obsolete if they fail to keep up with increasing data demands and new products or technologies that are launched over the next several years. It could also face incremental competition from the ongoing and future launch of LEO constellations that promise faster data speeds and are subsidiaries of more well funded competitors. Satellites do fail and malfunction, but the company does have in-orbit spares standing by as well as spares tucked away on the ground.
Live Nation (LYV, Buy, $100 PT)
Valuation: Our 12-month price target of $100 is based on a 19.5x 2021 EV/EBITDA multiple.
Risks: A global recession could limit discretionary income and slow fan and ticket growth. Regulatory risk tied to Live Nation’s vertically integrated business model. An inability to meaningfully scale sponsorship opportunities outside of festivals. Slower-than-expected international growth as Live Nation moves into new markets
Loral Space (LORL, Buy, $42 PT)
Valuation: Our $42 price target is based on a sum-of-the-parts analysis, which is detailed in our initiation report. (Link)
Risks: The risks to the legacy business include the end of the useful life of satellites in terms of their functionality and the revenue renegotiations on contracts that had been previously tied to their useful life. The decline in the Pay TV market also increases the risks of non-renewals. That risk is elevated in the event of a merger of DirecTV and Dish, a deal that we believe could pass regulatory review under the Biden administration.
Regulatory risk is always a factor for a global business selling connectivity. The risks of the LEO business also include financing, especially if the ISED does not propose a C-Band clearing plan that pays Telesat material proceeds. There are obviously risks of competitive capacity from additional LEO satellite launches, if those companies’ pivot their model to Telesat’s target markets. We do not believe terrestrial networks pose material risks to satellite connectivity.
Madison Square Garden Entertainment (MSGE, Buy, $120 PT)
Valuation: Our $120 price target is based on a SOTP methodology
Risks: MSGE is levered to the entertainment industry, which is uniquely impacted by the ongoing COVID-19 global pandemic. We have accounted for a prolonged downturn due to COVID-19. However, any extension of COVID-19’s impact beyond our modeled timeline could have a negative impact on MSGE’s entertainment business and the company’s valuation. We also model material Sphere AOI in 2023. Any delay in construction timeline could also impact our valuation.
Netflix, Inc. (NFLX, Buy, $630 PT)
Valuation: Our 12-month price target of $630 is based on a 25x 2023 EBITDA discounted back at 15%.
Risks: Proliferation of new SVOD and AVOD streaming services (Disney+, Apple TV+, HBO Max, Quibi, Peacock, etc) increases competition for consumer time and money, which could have a negative impact on Netflix’s subscriber growth, particularly in the US . More competition for content could increase Netflix’s content costs and slow its contribution margin growth. Competitors have started to pull library content from Netflix, which could increase the service’s churn. Netflix has historically accessed debt markets for financing. Any adverse changes in lending standards could impact Netflix’s ability to continue increasing their spend. International growth will require specific, and potentially expensive, content tied to each individual market, with no guarantees that the content will resonate outside of its intended market.
Pinterest Inc. (PINS, Buy, $100 PT)
Valuation: Our 12-month price target of $100 is based on a 35x 2024 EBITDA discounted back two years at 15%.
Risks: Lower engagement as the world reopens post-pandemic. Increased competition from Facebook, Instagram and other large tech platforms that are making more of their content shoppable. Weaker economic outlook pressuring advertising revenues, which make up 100% of Pinterest’s revenues. Failure to improve overseas monetization.
Radius Global (RADI, Buy, $21 PT)
Valuation: Our price target of $21 is based on a sum-of-the-parts of Radius’s two businesses. The portfolio company can be simply valued as a multiple of its in-place rents. We believe the appropriate blended multiple should be 16x, which assumes a high of 20x for the United States and a low of 10x for Latin American assets. This results in $11 per share of value. We value the acquisition company by estimating the amount of in-place rents we believe it can generate in 10 years. We then assume a 15x exit multiple and find the present value using an 8% cost of equity. This results in $10 per share of value. Our price target also implies 22.6x our 2022 Portfolio Company EBITDA estimate.
Risks: Radius is subject to currency and political risks since the majority of revenue is generated outside the US. There is potential regulatory risk in the UK where operators have been pushing for rent abatements. The company could face some pressure on its rooftop sites if wireless carriers decide to relocate.
Roblox Corp. (RBLX, Buy, $85 PT)
Valuation: Our 12-month price target of $85 is based on 20x our 2022 bookings estimate of $2.75bn.
Risks: Lift from COVID is temporary and Roblox users become much less engaged following reopening. Even if Roblox provides better tools, UGC developers are unable to create experiences with broader appeal. Developers require significantly larger bookings share, especially as a result of competition with Epic / Fortnite. UGC experiences lose appeal as professional studios create better experiences and metaverse is more interoperable / distributed.
SBA Communications (SBAC, Buy, $343 PT)
Valuation: Our $343 price target is based on a sum-of-the-parts that implies a blended 30.1x multiple on our 2022 Cash EBITDA estimate. We expect multiple expansion to achieve our price target. We estimate the current stock price implies 31.5x our 2021 domestic tower Cash EBITDA estimates. Our price target implies the domestic tower multiple will expand to 35.0x on our 2022 estimate. Our price target also implies a 2022 FCF yield of 3.0% and a 2022 AFFO multiple of 31x on 8% growth.
Risks: Risks that are specific to SBA include its exposure to Brazil, which has a volatile currency and faces industry consolidation.
Snap, Inc. (SNAP, Buy, $20 PT)
Valuation: Our 12-month price target of $20 is based on a 25x 2022 EV/EBITDA multiple discounted back one year at 20%
Risks: Facebook increasing its focus on private messaging through Threads could pressure Snapchat’s user base. Outcome of ongoing SEC/DOJ Investigation is unknown. Snapchat’s entrance into mobile gaming could be met with increased ongoing competition through both subscription offerings (Apple Arcade, Google Play Pass) and free-to-play (evidenced by the recently released Call of Duty: Mobile). Increased competition in the mobile advertising space.
The Madison Square Garden Company (MSG, Buy, $360 PT)
Valuation: We value MSG at $360, based on a sum-of-the-parts basis. We are valuing Entertainment Co at $161 excluding its retained interest in sports. We are valuing Sports Co at $198. If we allocate 1/3 of Sports to Entertainment, Entertainment shareholders would own $227 per share of value in the Entertainment company and $133 in Sports company. Adding the two pieces together, we get $360.
Risks: Greater-than-anticipated capex and lower-than-anticipated EBITDA tied to the MSG Spheres. Economic downturn in New York City. Declining or stagnant professional sports franchise valuations in future ownership sales.
Twitter Inc. (TWTR, Buy, $45 PT)
Valuation: Our 12-month price target of $45 is based on a 25x 2021 EV/EBITDA multiple.
Risks: DAU growth slows and/or reverses due to reduced interest in the Twitter product offering and/or increased competition from larger industry peers such as Facebook and Google. Given that the overwhelming majority of Twitter’s revenues are derived from advertising, a meaningful downturn in the global economic outlook could pressure Twitter’s earnings growth. Increased regulation adds to cost pressure and weakens the ability to monetize Twitter’s user base. Weakness in the Japanese market given that it represented 16% of total company revenue in 2019.