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Here's Why World Wrestling Entertainment (WWE) Stock Is Soaring

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Shares of World Wrestling Entertainment (WWE - Free Report) opened more than 13% higher on Thursday after The Hollywood Reporter said the media company is talking to other networks about airing its weekly “Smackdown” television program.

WWE currently runs both its Smackdown and “Raw” franchises on USA Network, a channel operated by Comcast’s (CMCSA - Free Report) NBCUniversal. However, the sports entertainment giant is nearing the end of its current contract and has been in talks with other networks. Now, it appears as if Raw and Smackdown will have separate homes.

“WWE's Smackdown is being shopped to various networks after NBCUniversal — whose USA Network airs the highly rated pro wrestling matches — declined to re-up its deal,” the The Hollywood Reporter said.

“NBCU is said to be focusing on renewing its pact for WWE's Raw, another wrestling franchise, and that deal is expected to close at as much as three times its current value.”

Investors clearly see these negotiations as a sign that WWE will be getting a great deal for its popular TV shows. The company is coming off a strong quarter, which saw adjusted earnings of 18 cents per share. This topped the Zacks Consensus Estimate by five cents and marked a year-over-year improvement of 125%.

License fees from the distribution of Raw and Smackdown make up a large chunk of WWE’s total revenue. This business swelled 10.6% in the most recent quarter, helping the company’s overall Media revenue surge 10%. WWE also saw a 29.8% rise in sales and advertising sponsorships across media platforms.

In recent years, investors have been excited by the growth of WWE Network, the wrestling powerhouse’s over-the-top streaming platform. WWE Network users pay a flat monthly fee to access libraries of old shows, live pay-per-view events, and additional original content.

Since its report, WWE has seen three positive revisions to its full-year EPS estimates, with one negative revisions also coming in. Consensus estimates are trending up, but this mixed activity has kept the stock at a Zacks Rank #3 (Hold). The company is currently expected to report earnings growth of 32.3% on the back of 8.1% revenue growth this fiscal year.

Still, the stock is sporting an “F” grade for Value in our Style Scores system. Even before today’s gains, WWE was trading at more than 50x forward 12-month earnings, with its P/S of 4.2 and its P/B of 12.2 also appearing stretched compared to our “Film and Television Production and Distribution” group.

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