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Madison Square (MSG) Rises 23% in 6 Months: More Room to Run?

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The past six months have been rewarding for The Madison Square Garden Company (MSG - Free Report) . The stock has gained 23.7% against the industry’s 1.1% decline. This outperformance can be primarily attributed to solid brand presence and strong entertainment business.

However, intense competition in the sports business and subsequent sluggish performance by Knicks have hurt the stock in the recent past. In a month’s time, shares of Madison Square have declined 5.1%. Let’s delve deeper.

Key Catalysts

The company has a strong industry presence that allows it to explore opportunities for new content and brand extensions. Madison Square is expected to tread on growth trajectory, given its first-class operations coupled with innovations and the ability to deliver top-class experiences to guests.

Further, Madison Square continues benefiting from ongoing efforts to reinstate growth through multi-night and multi-marketing agents. The company’s iconic venues hosted a diverse range of concerts, marquee events and family show with immaculate operational expertise.

Madison Square’s focus on partnership to drive growth is impressive as well. Evidently, the company has renewed partnership agreements with Delta Air Lines, Charter Communications and Kia, and added Squarespace as a new partner, which would sponsor the first ever Knicks Jersey. In the entertainment business, it partnered with Hulu and Montefiore Health System.

Recently, Madison Square also announced a multifaceted partnership with PepsiCo, which will serve as the company’s official signature food and beverage partner, effective Sep 1. Following the deal, PepsiCo is slated to become an exclusive non-alcoholic beverage and salty snack partner across the various MSG properties, including venues in New York, LA and Chicago. PepsiCo also is slated to be an official partner of the Knicks, Rangers and Counter Logic Gaming as well as the Christmas Spectacular Starring the Radio City Rockettes.

Meanwhile, Madison Square continues to exhibit stellar performance in the company’s entertainment business. In the last reported quarter, Madison Square reported third straight quarter revenue growth year over year in the live entertainment. In the fourth quarter of fiscal 2018, the Entertainment segment’s revenues totaled $185.6 million, up 47% year over year.

Hurdles to Cross

Madison Square, which shares space with SeaWorld Entertainment, Inc. (SEAS - Free Report) , has been delivering sluggish performance in its sports segment. In fact, the company had not derived any profit from the NBA and NHL seasons that concluded in the third quarter. Also, the sale of tickets has become a challenge with the not-so-impressive performance of the Knicks team. We expect this to continue in the near term.

In the fiscal fourth quarter, revenues from the sports segment declined 26% year over year to $132.5 million. The downside can be attributed to lower league distributions and the absence of playoff-related revenues. Per Madison Square, professional sports teams' regular-season ticket-related revenues as well as food, beverage and merchandise sales declined as well.

Given the underperforming sports business segment, Madison Square has recently contemplated the spinoff of its sports business from the entertainment segment.

Key Picks

Madison Square has a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the same space include Vail Resorts, Inc. (MTN - Free Report) and Reading International, Inc. (RDI - Free Report) . Both the stock carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vail Resorts reported better-than-expected earnings in the trailing two quarters.

Reading International’s earnings have surpassed the Zacks Consensus Estimate in the preceding two quarters.

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