Hulking Up? Morgan Stanley Thinks WWE's Stock Isn't Ready To Tap Out Just Yet

After gaining 79 percent in the past year, at least one Wall Street analyst says World Wrestling Entertainment, Inc. WWE stock still has room to run.

The Analyst

Morgan Stanley analyst Benjamin Swinburne upgraded WWE from Equal-Weight to Overweight and has raised his price target from $23 to $40.

The Thesis

WWE’s upcoming TV contract renewal cycle will be a huge revenue growth driver for the company. Swinburne said in a note he expects a major uptick in media rights revenue in three markets that account for 80 percent of WWE’s total broadcast revenues—the U.S., the U.K. and India.

“Our bullish view stems from both industry trends that have pushed up the value of exclusive popular content, and also from WWE's strong position on TV today (Raw and Smackdown ratings on USA Network) and its clear position of strength online (#1 ranked YouTube channel among all sports),” Swinburne said.

He said Morgan Stanley’s upgrade was driven primarily by three factors:

• There is more money being spent on video content by different platforms than ever before;
• Rights renewals should help drive margin expansion and improve operating leverage; and
• WWE represents a valuable potential acquisition target in a rapidly consolidating media landscape.

Together, Swinburne said the three factors above will drive 25 percent revenue growth and 6.5 percent margin expansion for WWE from 2017 to 2020.

Price Action

Following the upgrade, WWE stock traded higher by nearly 2 percent to $34.84 on an extremely weak morning for the market.

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Image credit: Miguel Discart, Flickr