The Beverly Hills, Calif.-based Live Nation Entertainment (LYV) is the world’s leading live entertainment company, comprising global market leaders Ticketmaster, Live Nation Concerts, and Live Nation Sponsorship. The company owned, operated, and leased 155 entertainment venues in North America and 76 entertainment venues worldwide as of December 31, 2020.

The company’s shares have surged 40% in price over the past three months and 18.6% over the past month on the back of better-than-expected financial results in its last reported quarter. In addition, with solid progress on the vaccination front, live events are rebounding, and people are more eager to attend in large numbers. This has boosted LYV’s revenue growth lately.

However, the stock fell 5% in price on Monday after the LYV-organized Houston music festival ended in tragedy, with eight people killed and hundreds more injured. Following the incident, multiple lawsuits were filed against the company. We think this might have a detrimental influence on the company’s price performance in the coming weeks.

Here is what could influence LYV’s performance in the upcoming months:

Ongoing Lawsuit

This month, The Schall Law Firm began investigating LYV on behalf of investors for violating securities law. The  Associated Press published an article headlined “Crowd surge kills at least eight at Houston music event,” organized by Live Nation. The investigation focuses on whether the company made false or misleading statements to investors and neglected to disclose material information. Because investors remain concerned about the lawsuit, LYV’s stock could take a significant hit.

Poor Profitability

LYV’s 32.9% trailing-12-months gross profit margin  is 35.8% lower than the 51.3% industry average. Also, its ROC, net income margin, and EBIT margin are negative 6%, 23.7%, and 18.4%, respectively. Furthermore, its 0.31% trailing-12-months asset turnover ratio is 30.2% lower than the 0.45% industry average.

Impressive Growth Prospects

The $2.16 billion consensus revenue estimate for the next quarter (ending March 2022) indicates a 644.2% improvement year-over-year. Analysts expect LYV’s EPS to rise 73.6% in the next quarter.

The Street expects LYV’s revenues and EPS to rise 182% and 65%, respectively,  year-over-year in its  fiscal year 2021. Also, the company’s revenue is expected to rise 145.9% year-over-year to $12.91 billion in fiscal 2022. In addition, LYV’s EPS is expected to rise at an 80.3% CAGR over the next five years.

Premium Valuation

In terms of trailing-12-months Price/Cash flow, the stock is currently trading at 28.73x, which is 198.5% higher than the 9.62x industry average. Also, its 5.35 forward EV/Sales multiple  is 113.6% higher than the 2.51 industry average. Also, LYV’s 4.52x forward Price/Sales  is 164% higher than the 1.71x industry average.

POWR Ratings Reflect Uncertainty

LYV has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. LYV has a D grade for Value and Stability. The company’s higher-than-industry valuation justifies the Value grade. In addition, the stock’s 1.29 beta is consistent with its Stability grade.

The company also has a C for Quality, which is in sync with its poor profitability.

Of the 15 stocks in the F-rated Entertainment – Sports & Theme Parks industry, LYV is ranked #7.

Beyond what I have stated above, one  can view LYV ratings for Growth, Momentum, and Sentiment here.

Bottom Line

The rising demand for live events and concerts has driven LYV’s shares to surge 58.7% in price so far this year. In addition, the company posted strong revenue growth in its third-quarter financial results. However, because LYV is currently facing lawsuits concerning fatalities at a Houston music event last week, the stock could decline  in the coming weeks. So, we think investors should wait for its prospects to stabilize before investing in the stock.

How Does Live Nation Entertainment Inc. (LYV) Stack Up Against its Peers?

While LYV has an overall C rating, one might want to consider its industry peer, Six Flags Entertainment Corporation New (SIX), having an overall B (Buy) rating.

LYV shares fell $1.21 (-1.04%) in premarket trading Wednesday. Year-to-date, LYV has gained 56.85%, versus a 25.80% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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