By Sam Boughedda
Citi analysts believe the Street seems too bearish on Endeavor Group Holdings (NYSE:EDR), with the stock and World Wrestling Entertainment Inc (NYSE:WWE) shares trading lower following the announcement that EDR will acquire the wrestling powerhouse.
Endeavor agreed to buy WWE in an all-stock transaction for $106 per share. Once the transaction closes, a newly listed security (under the ticker TKO) will own both UFC and WWE.
Analysts, who have a $30 price target on EDR, said they understand why WWE might trade lower as some investors were likely looking for an all-cash offer, but they are confused by the weakness in Endeavor's share price.
"Looking at the pro forma metrics, we believe Endeavor RemainCo (EDR less 51% of UFC + WWE) may be the most mispriced," analysts wrote.
"We maintain our Buy rating on WWE. As investor attention shifts from the sale process to the US rights renewal, we expect the shares will recover. We also maintain our Buy rating on Endeavor. Once the Street has had time to model the pro forma firm (and its growth profile), we suspect the multiple will expand from prevailing levels."