Liberty Media Acquisition Has Limited Downside – F1’s Business Model Stands Out

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Morgan Stanley sees a relatively limited downside to Liberty Media Formula (NASDAQ:FWONA) One (NASDAQ:FWONK) shares, despite the fact they trade at a premium to peers.

In a research note, analysts who have an Overweight rating and a $75 price target on the stock, explained why they are optimistic about Formula 1, which is owned by Liberty.

They told investors that “in a market of macro uncertainty, F1’s highly contracted business model stands out as attractive.”

“Our recent upgrade of FWONK shares reflects the view that 1) F1’s rising popularity is translating into strong financial growth over a multi-year period, 2) big tech’s emergence as major bidders for major sports rights will continue to benefit rights holders like F1 and 3) in an environment with rising global macro pressures, F1’s highly contracted business model warrants a premium multiple,” wrote the analysts.

They also pointed to the recently announced record 24 race count for 2023, and the long-term Sky agreement reinforces Morgan Stanley’s view that F1’s rising popularity is translating into stronger for longer financial growth.

“Overall, we forecast an ~13% and ~25% F1 adjusted EBITDA and Levered FCF growth CAGR through ’25,” added the analysts. “The recent Sky renewal means that ~45% of F1’s largest primary revenue stream – its broadcast revenues – is now contractually locked in through 2027-29. This represents around 20% of F1’s total primary revenues. The recent pullback in shares offers up 20% potential upside to our $75 PT, 50%+ in the bull case. FWONK shares trade at a premium to peers, but have consistently for years and we see fairly limited downside in our bear case.”