Morgan Stanley Shifts Thesis On Madison Square Garden

Madison Square Garden Co MSG shares have outperformed the media sector, prompting an analyst to lower his investment opinion on the stock.

The Analyst

Morgan Stanley analyst Benjamin Swinburne downgraded shares of Madison Square Garden from Overweight to Equal-Weight with a $245 price target. 

The Thesis

The 50 percent-plus NAV discount at which Madison Square Garden shares were trading has narrowed, and the investment thesis may be shifting from strategic optionality to venue expansion, Swinburne said in a Tuesday note. (See Swinburne's track record here.)

Swinburne attributes the narrowing of the discount to continued sports asset price appreciation, supported by sales of the Houston Rockets and Brooklyn Nets, and the strategic flexibility the company now possesses two years out from the Madison Square Garden/MSG Networks Inc MSGN spin-off.

The company can now realize the full value of those assets in a tax-efficient manner through a sale, Swinburne said.

The venue expansion, according to the analyst, poses risks arising from significant investment requirements and its ability to replicate the Forum's success.

Notwithstanding the possibility of continued asset price appreciation ahead for the portfolio, Morgan Stanley projects new risks to the shares. If the company chooses to use its ample financial capacity for venue expansion, investors — who are looking for the company to acquire shares at a discount to fair value, further sell assets or go private — may be disappointed, Swinburne said. 

Morgan Stanley said the risk-reward is now more balanced to its broader media coverage group.

The Price Action

Madison Square Garden shares are up over 27 percent year-to-date.

At the time of writing, the shares were receding 2.79 percent to $212.51.

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Photo by Rich Mitchell/Wikimedia.