Albert Fried On SFX Entertainment Inc: Focus On The Fundamentals, Not Anonymous Bloggers

On Wednesday, an unnamed blogger on Seeking Alpha published a negative article claiming that SFX Entertainment Inc SFXE has an over-levered balance sheet and heavy cash burn. In addition, the author claims that SFX Entertainment's equity is "worthless."

Several hours later, Rich Tullo of Albert Fried released a rebuttal note defending shares. The analyst states that he places little value on the article, which could have been written by a short seller.

"The fact is SFX Entertainment expanded top line by three fold over the last 12 months ending in June to $82 million from $27.4 million which makes SFX Entertainment the fastest growing company in our coverage universe," Tullo wrote in his note.

Tullo also states that the company expended its revenue by around 300 percent, while Adjusted Cash Out-Flow expanded at a slower rate to nearly $21 million in the second quarter from $15 million in the same quarter a year ago. The analyst adds that this may suggest a “significant” operating leverage in the company's model.

Tullo estimates the company could improve its revenue generated per attendee to $199 per person in the third quarter, which compares favorably to $120 per person the company collected in the first quarter. This may help the company narrow its loss per share to $0.05 from a loss of $0.46.

In addition to demonstrating improved financial performance over the year, Tullo believes that SFX Entertainment is a compelling takeover target given the "cheap valuation" in shares relative to the private market for festival assets.

Shares of SFX Entertainment traded to new 52-week lows of $3.52 on Wednesday morning following the publication of the Seeking Alpha article. Tullo views the weakness in shares as a buying opportunity.

Shares recovered to $4.28 Wednesday afternoon.

Shares are Overweight rated with an $11 price target.