Posted on: December 5, 2024, 03:34h.
Last updated on: December 5, 2024, 03:34h.
Shares of Sphere Entertainment (NYSE: SPHR) slipped Thursday after a research firm recommended shorting the recently slumping stock.
In a note to clients, Hedgeye analyst Andrew Freedman said the operator of the Las Vegas Strip entertainment venue faces an array of headwinds, adding the shares could see as much as 30% downside in the months ahead.
SPHR faces an array of challenges that we expect will weigh on growth through 2025 and potentially beyond,” Andrew Freedman wrote. “Without significant growth in the Sphere Experience segment to offset persistently high operating costs, profitability remains elusive.”
His comments jibe with those of other analysts that have said Sphere Entertainment needs to display proficiency in landing top-tier acts and programming. Some on the sell-side have said Sphere needs to land marquee acts and prime one-off events to improve its economic viability because the venue has steep operating costs and with just one screen, it faces challenges mitigating those costs.
Sphere Stock Favorite Short Target
Hedgeye’s bearish call on Sphere stock arrived with the shares in the midst of 10% decline over the past month and with short interest residing at 29.5%, confirming the name is a favorite target of bearish traders.
That view is affirmed by the stock’s recent slump and the company’s third-quarter operating loss of $125.1 million. Four consecutive months of declining gross gaming revenue (GGR) in Nevada also fuels the bear case against Sphere. Hedgeye’s Freedman added that possibility of reducing show volumes could be counterintuitive when it comes to Sphere boosting top-line growth.
“We have serious doubts about the sustainability of reducing show volumes as a long-term strategy to maintain higher utilization rates and grow revenue,” observed the analyst.
In his report, Freedman also mentioned the oft-cited albatross of Sphere Entertainment’s ownership of the debt-laden Madison Square Garden Network. However, Sphere recently took steps to allay those concerns. Sphere announced the deal with those creditors in a filing with the Securities and Exchange Commission (SEC) on October 11. The nearly $830 million in debt held by the regional sports network accounts for the majority of Sphere’s outstanding liabilities and has been viewed by some in the investment community as a drag on Sphere shares.
Sphere Stock Not an Easy Short
Despite the aforementioned elevated short interest, third-quarter financial struggles, and high operating costs, Sphere stock arguably isn’t the easiest name to short. Bearish bets against the shares could face headline risk in the form of the company announcing new, big-name residencies.
Likewise, Chairman and CEO James Dolan said Sphere is hard at work developing new entertainment options for non-residency days at the venue, including a Sphere-friendly version of the 1939 classic “The Wizard of Oz.”
