WWE's Sell-Off Continues Following Executive Departures, Uncertainty Ahead

After a brutal day of trading on Friday, World Wrestling Entertainment, Inc. WWE traded lower by another 4.7% on Monday following the unexpected departure of two top executives. Several analysts cut price targets for WWE following the news, but a downgrade by Morgan Stanley likely hit the stock particularly hard.

On the afternoon of Jan. 30, WWE announced Co-Presidents George Barrios and Michelle Wilson are leaving the company effective immediately. In addition, WWE said it expects to report $180 million in full-year adjusted OIBDA, the low end of its guidance range of $180 million to $190 million. Analysts had been anticipating $186.6 million.

Morgan Stanley Weighs In

Morgan Stanley analyst Benjamin Swinburne downgraded WWE to Equal-Weight and cut his price target from $80 to $54. Swinburne said the timing and circumstances surrounding the management shuffle are particularly concerning.

“The unexpected and immediate departure of WWE’s long standing co-presidents, George Barrios and Michelle Wilson yesterday with no transition period and minimal explanation creates enough uncertainty in the future of the business that we can no longer support an Overweight rating,” he wrote in the Jan. 31 note.

Uncertainty Ahead

Swinburne said there are now three major sources of uncertainty for WWE investors:

• Barrios and Wilson had each been with WWE for more than a decade, and the company is now lacking senior leadership as CEO Vince McMahon is set to re-launch the XFL starting next weekend.
• WWE’s investment outlook, which some analysts speculate was the cause of management’s dispute with the board, and its capital allocation plans now seem extremely uncertain in the near-term.
• The departure of top executives without warning and without a clear path forward jeopardizes WWE’s key partnerships, including its relationships with media companies like Fox Corp FOX, sponsors like Progressive Corp PGR and key talent like Roman Reigns.

“Removing its two co-presidents,effective immediately, with no broader communication of the implications to the business and no clear path towards new leadership, increases the risk around managing, maintaining,and leveraging these critical relationships,” Swinburne said.

Swinburne said WWE’s earnings multiple will likely remain pressured unless the company hires at least one well-known operating executive with a strong track record in a timely fashion.

Benzinga’s Take

Investors were understandably blindsided by the unexpected departure of two senior management members. However, with the stock now down 25% since Thursday’s close, there is potential for a near-term relief rally if the company provides a clear explanation and path forward on its earnings call on Wednesday.

WWE's stock traded around $46.76 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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