MSG Networks Downgraded By Macquarie Amid Sale Talks

The New York Post reported earlier this week MSG Networks Inc MSGN is looking to sell itself. Analysts at Macquarie commented on the reports, noting that while it makes sense for the company to sell itself, it would be prudent to downgrade the stock's rating.

Macquarie's Tim Nollen downgraded MSG Networks from Outperform to Neutral as reports of a potential sale drove the stock close to the analyst's $26 price target.

According to Nollen, MSG Network's viewership and ratings is directly related to the performance of the sports teams it covers. The NBA's Knicks are a "particular concern" as they're once again one of the worst teams in the league with a 29-48 record. If its other flagship team, the NHL's Rangers don't perform well (the team secured a playoff spot this year) then viewership could suffer in the future.

Nollen said regional sports networks like MSG Networks will continue to face difficulties in securing affiliate fee increases as the distribution landscape has consolidated with skinnier bundles that don't after include sports contents. In fact, a fragmented viewership base would make it difficult for distributors to justify MSG Network's high $5 per month subscriber fee.

Finally, the addition of regional sports networks to a virtual cable service provider such as Verizon Communications Inc. VZ would give it a good way to differentiate its offering from the "crowded" over the top (OTT) landscape. In addition, content from MSG Networks would be accretive to Verizon at the right price.

Bottom line, the analyst's downgrade is purely based on the fact the stock "has run its course" on the buyout report and any price tag on a deal won't be for much more than the analyst's $26 price target. If a deal doesn't happen, then the stock "is likely to fall a bit from here."

See Also:

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