Guggenheim has reaffirmed a Buy recommendation on Madison Square Garden Sports Corp. (NYSE:MSGS) after the company disclosed plans to investigate a potential separation of its major sports franchises into independent public companies.
The stock has climbed 49.19% over the past six months and is trading at $342.14, exceeding the prior 52-week high of $299.01, according to InvestingPro data. Madison Square Garden Sports said its board unanimously approved a plan to explore splitting the New York Knicks and New York Rangers into two separate publicly traded companies. The company indicated the intended structure for the transaction would be a tax-free separation distributed to shareholders.
Management described the proposal as a mechanism to make each franchise’s economic profile and strategic direction easier for investors to assess, and to give each new public company greater strategic and financial flexibility. Guggenheim reiterated that historically, when a Madison Square Garden entity or a Dolan family company initiates a process to consider separation, follow-through typically occurs.
Guggenheim’s analysis also incorporated third-party franchise valuations. Sportico and Forbes value the New York Rangers at $3.65 billion and $4.0 billion, respectively. For the New York Knicks, Sportico places a value of $9.85 billion, Forbes at $9.75 billion and CNBC at $10.1 billion. Drawing on those figures, Guggenheim concluded that Madison Square Garden Sports shares should trade in a range of $540 to $570 per share or higher, which would represent an 84% to 94% premium to the prior day’s closing price. The firm noted that third-party valuations have tended to be conservative compared with actual transaction prices.
At its current market capitalization of $8.24 billion, Madison Square Garden Sports’ valuation appears to suggest material upside if the team-level valuations translate into realized value for shareholders. Guggenheim raised its price target on the shares to $355 from $314 while maintaining the Buy rating; the increase followed the company’s fiscal second-quarter results.
On the company’s fiscal second-quarter performance, Madison Square Garden Sports reported earnings per share of $0.34, missing the consensus forecast of $0.52 by 34.62%. Revenue for the quarter was $403.4 million, outperforming estimates by 2.14%. The company attributed part of the revenue upside to staging four additional games at The Garden compared with the year-ago period.
InvestingPro’s analysis, cited alongside market reaction, indicates that Madison Square Garden Sports trades above its Fair Value and that the company has not been profitable over the last twelve months. Those observations sit alongside the third-party franchise appraisals used by Guggenheim to argue for a materially higher share price.
The proposed transaction would be structured as a tax-free spin-off in which 100% of the common stock of the new company would be distributed on a pro-rata basis to existing Madison Square Garden Sports shareholders. While the board has approved an exploration of the separation, the company is still in the process of evaluating the proposal.
For readers seeking additional financial detail, a Pro Research Report is available on InvestingPro that covers Madison Square Garden Sports and more than 1,400 other U.S. equities.
Clear summary
Madison Square Garden Sports is investigating a tax-free spin-off to separate the Knicks and Rangers into standalone public companies. Guggenheim keeps a Buy rating, raises its price target to $355, and cites third-party team valuations that imply a markedly higher share price. The company posted mixed fiscal second-quarter results, with revenue beating estimates and EPS missing, and InvestingPro flags valuation and profitability concerns.
Key points
- Guggenheim reaffirmed a Buy rating on MSGS and lifted its price target to $355 from $314 following Q2 results and the spin-off announcement - sectors impacted include Sports, Media and Financial Markets.
- Third-party valuations place the Knicks between $9.75 billion and $10.1 billion and the Rangers at roughly $3.65 billion to $4.0 billion, underpinning Guggenheim’s argument that MSGS shares could be worth $540 to $570 or more.
- MSGS is trading well above its previous 52-week high and has gained 49.19% over six months; the company’s current market cap is $8.24 billion.
Risks and uncertainties
- The board has approved only an exploration of a spin-off; there is no guarantee the transaction will be completed - this affects investors in the equity and the sports and media sectors.
- InvestingPro’s assessment signals that MSGS is trading above its Fair Value and also notes the company has not been profitable over the last twelve months, raising valuation and profitability concerns for equity holders and credit markets.
- Fiscal Q2 results showed an EPS shortfall versus estimates despite revenue outperformance, illustrating earnings volatility tied to event scheduling and gate-driven revenue in the sports and entertainment sector.