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Endeavor Group Holdings: Massive Growth Potential Ahead?

Sports and entertainment giant Endeavor Group Holdings (EDR) is expected to witness solid revenue and earnings growth this year, despite the persistent macroeconomic headwinds. However, given EDR’s slight overvaluation and negative profit margins, is it an ideal investment bet now? Read more to learn our view.

Endeavor Group Holdings, Inc. (EDR) in Beverly Hills, Calif., is a global sports and entertainment company that operates in three segments: Owned Sports Properties; Events, Experiences & Rights; and Representation. Its wholly owned subsidiaries include event and media company IMG, the premier mixed martial arts organization UFC, and entertainment agency WMC.

EDR made its stock market debut through a traditional IPO listing on the Nasdaq Stock Exchange on its second attempt. The stock has gained 7.7% in price since listing, which is slightly lower than the benchmark S&P 500 index’s 9.8% gains over this period.  EDR's shares have plummeted 14.9% in price year-to-date due to the market correction earlier this year. But stock has been rebounding as the markets stabilize, gaining marginally intraday to close yesterday’s trading session at $29.35.

Analysts are betting that the company’s financials will improve substantially this year. EDR’s revenues and EPS are expected to rise 24.7% and 25.2%, respectively, year-over-year to $1.33 billion and $0.28 in its fiscal year 2022 first quarter (ending March 31, 2022). The $5.29 billion consensus revenue estimate for fiscal 2022 indicates a 4.2% improvement year-over-year. And the $1.33 consensus EPS estimate for the current year indicates 22.3% growth from the same period last year. However, the Street expects EDR’s revenues to dip 6.9% year-over-year in its third fiscal quarter (ending September).

Here is what could shape EDR’s performance in the near term:

Impressive Growth Story

EDR’s revenues have increased at a 16.5% CAGR over the past five years and at a 12% CAGR over the past three years. The company’s EBITDA has risen at a 24.9% rate per annum over the past three years and at a 35.2% rate per annum over the past three years. In addition, EDR’s levered free cash flow has risen at a 40.1% CAGR over the past three years.

The company’s trailing-12-month revenues grew 46% year-over-year, while its trailing-12-month EBITDA and levered free cash flow rose 138.2% and 53.9%, respectively, year-over-year. Also, the company’s operating cash flow rose 16.9% from the same period last year, while its working capital improved by 1,438.7% year-over-year.

Mixed Financials

In its fiscal fourth quarter, ended Dec. 31, 2021, EDR’s revenues increased 56.7% year-over-year to $1.51 billion. Its operating income came in at $53.49 million, compared to a $21.65 million loss reported in the prior-year quarter.

However, its loss before income taxes and equity losses of affiliates worsened by 34.2% from the same period last year to $101.70 million. And its net loss widened 238.1% from the year-ago value to $16.70 million. Its loss per share doubled year-over-year to $0.07.

Consensus Rating and Price Target Indicate Potential Upside

Among the six Wall Street analysts that rated EDR, five rated it Buy, while one rated it Hold. The 12-month median price target of $39.17 indicates a 33.5% potential upside from yesterday’s closing price of $29.35. The price targets range from a low of $30.00 to a high of $45.00.

POWR Ratings Reflect Uncertainty

EDR has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

EDR has a C grade for Momentum, Value, and Quality. The stock is currently trading above its $28.05, 200-day moving average, but below its 50-day moving average of $29.86, in sync with the Momentum grade.

In addition, EDR’s 22.06 forward non-GAAP P/E multiple is 19.7% higher than the 18.43 industry average, justifying the Value grade. Also, the company’s trailing-12-month levered free cash flow margin of 16.49% is 41.1% higher than the 11.69% industry average. However, its trailing-12-month net income margin and ROE are negative, justifying its Quality grade.

Among  the 15 stocks in the Entertainment – Sports & Theme Parks industry, EDR is ranked #2.

Beyond what I have stated above, view EDR ratings for Growth, Sentiment, and Stability here.

Bottom Line

Despite being one of the biggest entertainment and media companies globally, EDR’s bottom line and profit margins are negative. While analysts expect the company’s financials to grow at a stable rate this year, EDR’s negative ROE and ROA are a cause for concern. Thus, we think investors should wait until EDR’s profit margins improve before investing in the stock.

How Does Endeavor Group Holdings (EDR) Stack Up Against its Peers?

While EDR has a C rating in our proprietary rating system, one might want to consider looking at its industry peer SeaWorld Entertainment, Inc. (SEAS), which has a B (Buy) rating.

EDR shares were trading at $29.35 per share on Thursday morning, down $0.00 (0.00%). Year-to-date, EDR has declined -15.88%, versus a -3.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.


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