The firm said it began coverage on the professional wrestling and entertainment company based on its belief investors have underestimated the potential upside for the company's WWE Network video streaming service.
"WWE is likely one of the more controversial stocks in media as it blew up its successful pay-per-view model to become the first content company to launch an over-the-top streaming service in February 2014 - the WWE Network," Wells Fargo said in an analyst note.
Wells Fargo noted that the launch of the WWE Network came with a lot of "fanfare" but it missed management's initial forecast of 1 million subscribers by the end of 2014. The company's TV rights deal with NBCU was also below expectations and these factors caused the stock to drop.
"That said, sentiment turned this year and [the] stock is up +26% YTD thanks to 1.33 million subscriptions posted for WrestleMania 31 in late-march. But we still don't think investors are giving the network enough credit for the substantial upside potential from here," Wells Fargo added.
Shares of WWE closed at $15.56 on Tuesday afternoon.
Separately, TheStreet Ratings team rates WORLD WRESTLING ENTMT INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate WORLD WRESTLING ENTMT INC (WWE) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, increase in net income and good cash flow from operations. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 4.0%. Since the same quarter one year prior, revenues rose by 40.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- WWE's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.38, which illustrates the ability to avoid short-term cash problems.
- Powered by its strong earnings growth of 218.18% and other important driving factors, this stock has surged by 39.25% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, WWE should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Media industry. The net income increased by 221.6% when compared to the same quarter one year prior, rising from -$8.04 million to $9.77 million.
- Net operating cash flow has significantly increased by 252.35% to $14.28 million when compared to the same quarter last year. In addition, WORLD WRESTLING ENTMT INC has also vastly surpassed the industry average cash flow growth rate of 15.11%.
- You can view the full analysis from the report here: WWE Ratings Report