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Madison Square (MSG) Up 23% in a Year: Can It Gain Further?

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Shares of The Madison Square Garden Company (MSG - Free Report) are riding high on strong brand position, efficient and innovative operation and continual expansion through acquisitions. As a result, shares of the company have rallied 22.6% over the past year, outperforming the industry’s collective decline of 13.5%. However, intense competition in the sports business and tricky nature of consumer discretionary spending are deterrents.

Brand Presence and Acquisitions Raise Hope

Madison Square holds a strong brand position by maintaining iconic venues in top live entertainment markets. It also owns legendary sports franchises that boost its brand power. The company’s strong industry presence allows it to explore opportunities for new content and brand extensions. It is expected to tread on the growth trajectory, given its first-class operations coupled with innovations and ability to deliver top-class experience to guests.

Further, in order to strengthen footprint and explore opportunities, Madison Square has been consistently relying on partnerships and acquisitions.

In January 2017, the company procured a majority stake in entertainment, dining, and nightlife company, TAO, which enabled it to grow its portfolio from 19 to 26 venues. Venue expansion remains the primary strategy for Madison Square as it allows marketing partners to showcase their brands in powerful and innovative ways, by leveraging the venue's unique platform.

Efficient Operations to Aid Growth

Madison Square continues to benefit from efforts to reinstate growth through multi-marketing agents. The company’s iconic venues hosted a number of concerts, marquee events and family shows.

In fiscal 2018, Madison Square witnessed double-digit sponsorship and signage growth. The company renewed partnership agreements with Delta Air Lines, Charter Communications and Kia and added Squarespace as a partner, who would sponsor the first ever Knicks Jersey. In the entertainment business, the company partnered with Hulu and Montefiore Health System.




Strong Entertainment Business

Madison Square has exhibited stellar performance by its entertainment business in 2018. In fact, the fourth quarter marked the company’s third straight quarter of double digit year-over-year growth in live entertainment revenues.

Though revenues in the segment declined a slight 1% year over year in the first quarter of fiscal 2019, increased sales from TAO Group, higher sponsorship, and signage and inclusion of Obscura Digital results are encouraging. The company has several live entertainment services lined up for 2019.

Sports Segment a Drag

The company’s sports segment has been a weak spot. In fact, the company did not see any profit from NBA and NHL seasons during the third quarter of fiscal 2018. Further, ticket sale crunch due to unfavorable performance by the Knicks team is a challenge.

Consequently, in the fiscal first quarter, revenues from the sports segment declined 32% year over year to $55.4 million on lower suite rental fee revenues and impacted timing of local media rights revenues from MSG Networks Inc due to ASC Topic 606.

Given the underperforming sports business segment, Madison Square recently contemplated separation of the business from the entertainment segment.

Zacks Rank & Stocks to Consider

Madison Square carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space include Hudson Ltd. (HUD - Free Report) , Cinemark Holdings, Inc. (CNK - Free Report) and Reading International, Inc. . While Hudson sports a Zacks Rank #1 (Strong Buy), Cinemark and Reading International carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hudson has a projected earnings growth rate of 104.6% for the current year.

Cinemark is expected to register EPS growth rate of 15% in the next five years.

Reading International has a projected earnings growth rate of 54.9% for the next year.

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