Goldman Sachs analyst Stephen Laszczyk on Thursday initiated coverage of the shares of Sphere Entertainment Co SPHR with a Buy rating and a price forecast of $42.00.

Sphere operates two primary businesses: the Las Vegas Sphere, a state-of-the-art live entertainment venue, and MSG Networks, which includes two regional sports networks in the New York City area along with a direct-to-consumer streaming service.

Analyst notes the market is underestimating two major growth drivers, including the Las Vegas Sphere’s ability to evolve with new content, improving revenue and Adjusted Operating Income (AOI), with analyst projections ~5% above consensus for Sphere segment AOI and the expansion opportunities for additional Sphere locations globally.

Concerns over MSG Networks’ debt restructuring appear exaggerated, with the analyst expecting the outcome to be less value-destructive than anticipated by the market.

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The Las Vegas Sphere is benefiting from strong momentum in the live event space. Analyst sees room for upward estimate revisions over the next 12-24 months, driven by new residencies, content, sponsorship deals, and potential new Sphere locations.

Management is focused on optimizing venue usage, increasing the frequency and timing of events to enhance revenue, and adjusting pricing for premium hospitality and sponsorship packages to maximize profitability.

According to the analyst, at its current price, the market is not fully factoring in the potential revenue from new Sphere venues. Concerns stem from the rejection of a London Sphere in 2023 and delays in Abu Dhabi’s development since its October 2024 announcement.

Stronger execution in Las Vegas and progress in Abu Dhabi may attract other global cities, leading to new franchise opportunities.

Each new Sphere could generate tens of millions in annual revenue, with over 90% flow-through to AOI, representing significant upside potential for the stock.

The MSG Networks segment, like other Regional Sports Networks (RSNs), faces financial challenges due to cord-cutting and rising sports content costs. These pressures have left the business in a highly leveraged position.

Despite MSG Networks’ financial difficulties, the Sphere business is not obligated to use its cash for loan repayment. The analyst views the risk of a value-destructive recapitalization as low.

Price Action: SPHR shares traded lower by 1.04% at $33.43 at last check Friday.

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