Stay Nation Leisure (NYSE:LYV) offered over 485 million live performance tickets in 2019, making it the main dwell music firm on this planet. With dwell occasions placed on maintain through the pandemic, its income plunged 84% to $1.86 billion final yr. However in response to a Goldman Sachs analyst, it is now time to purchase the inventory.
Stephen Laszczyk lately set a $110 worth goal on the inventory, which is about 40% above the present quote of $78 per share. Laszczyk argues the corporate is effectively positioned for a return of dwell occasions within the close to time period.
Nonetheless, the inventory is already up over 130% since March 2020 — how a lot upside ought to traders anticipate?
Stay Nation sees greener pastures forward
Stay Nation’s technique is straightforward: Promote extra reveals, promote extra tickets, and make further cash by means of promoting to develop the enterprise. Ticket gross sales made up solely 13% of complete income in 2019. A lot of the prime line comes from the concert events themselves: concessions, parking, rental revenue, and repair costs.
It could take a number of years for Stay Nation to totally get better from the pandemic. At its peak in 2019, Stay Nation generated $11.55 billion in income. PwC’s newest International Leisure & Media Outlook report requires dwell music enterprise to return to 2019 income ranges by 2023.
Wall Road analysts, nonetheless, are extra optimistic. The consensus has Stay Nation rebounding to $5.05 billion in income this yr earlier than reaching a brand new report of $12.59 billion in 2022.
Stay Nation can also be upbeat about its near-term prospects. Within the fourth-quarter earnings report, administration famous that 83% of followers proceed to carry their tickets for rescheduled occasions, signaling there’s super pent-up demand.
Administration has maintained sufficient liquidity on the steadiness sheet, ending 2020 with $2.54 billion in money to finance the spending and investments wanted to place the enterprise for long-term development. Administration additionally lowered the corporate’s value construction by $200 million final yr, which ought to permit Stay Nation to emerge extra worthwhile from the pandemic. Different investments included investing in live performance streaming to broaden its money-making alternatives.
Within the first-quarter earnings report, administration was much more assured about its development prospects. It reported the live performance pipeline and sponsorship commitments for 2022 are up double digits from 2019.
Furthermore, administration is focusing on a whopping $750 million value discount in 2021. The lower appears to be factored into Wall Road’s estimates over the subsequent few years. By 2023, the consensus analyst estimate has Stay Nation reaching $5.04 in free cash flow (FCF) per share.
The inventory is buying and selling at 15 instances that free-cash-flow estimate, however the secular development pattern behind dwell music may push Stay Nation’s valuation increased. PwC’s analysis says the music sector will develop at a double-digit fee by means of 2025, pushed by digital streaming and dwell music demand.
The inventory may very well be a superb reopening play
Stay Nation is a powerful enterprise with vibrant long-term prospects. The inventory traded at a price-to-FCF a number of of over 30 earlier than the pandemic, so there’s potential for vital upside. Primarily based on the 2023 free-cash-flow estimate, that pre-COVID a number of would give the inventory a worth of about $151 per share, almost double the present share worth. However earlier than the inventory can attain such ranges, folks have to start out going to concert events once more.
And be mindful Stay Nation is already buying and selling above pre-pandemic ranges, regardless of trailing 12-month income being down 93% yr over yr, so the market is already pricing a powerful restoration into the company’s valuation.
Traders also needs to observe the latest spike in COVID-19 cases across the U.S. and in different nations means there’s nonetheless uncertainty relating to if and when native governments reinstate restrictions on public gatherings, which leaves a danger hanging over Stay Nation within the close to time period.
Nonetheless, the widespread vaccinations and rising variety of scheduled concert events means the worst might be over for the corporate. There could also be growth stocks on the market which have already surpassed their pre-pandemic outcomes, however Stay Nation stays a beautiful play on the burgeoning long-term demand for dwell music and occasions.
This text represents the opinion of the author, who might disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even certainly one of our personal — helps us all suppose critically about investing and make selections that assist us change into smarter, happier, and richer.