The live entertainment company Live Nation Entertainment, Inc. (LYV) has rallied 19.9% so far this year to close Friday’s trading session at $88.09, after hitting its 52-week high of $88.69. However, this performance can be attributed to investors’ optimism over an anticipated near-term resumption of live entertainment based on continued vaccine deployment and economic recovery. However, the nation’s recovery is far from where it needs to be, nor is the battle to defeat COVID-19 close to completion. Indeed, the road to recovery is likely to be a long one with new COVID-19 cases still being reported each day.

LYV has begun offering tickets for The Weeknd’s After-Hours World Tour, which is scheduled to commence on January 14, 2022. Also, LYV is burning cash just to stay functional amid the pandemic and over the past three years the company’s revenue has decreased at a CAGR of more than 21%. The company has also faced several allegations of illegal behavior over the years.

The company is scheduled to release its fourth quarter and full year 2020 (ended December 31, 2020) financial results on February 25, 2021 after the market closes. However, for the third quarter (ended September 30, 2020), LYV’s revenue fell significantly to $184.02 million from $3.77 billion in the third quarter of 2019. This can be  attributed primarily to the fact that live concerts practically came to a standstill thanks to the COVID-19 pandemic.

Consequently, LYV  also reported a net loss of $528.90 million and loss per share of $2.45 for the quarter.  LYV also missed a consensus EPS estimate in three of the trailing four quarters.

Here are the factors that can influence LYV’s performance in the near term:

Stretched Valuation

In terms of forward ev/sales, the stock is trading at 12.53x, which is significantly higher than the industry average 2.73x. Also, CAH’s forward price/sales of 10.10x is much higher than the industry average  1.92x.

Ticketmaster to Pay a Fine of $10 million

It has been alleged that LYV’s Ticketmaster illegally accessed the systems of a startup rival to steal proprietary info  to shut down the rival’s business. According to the Justice Department’s settlement with Ticketmaster, from August 2013 to December 2015, Ticketmaster employees repeatedly used stolen passwords to gain unauthorized access to non-public ticketing info from the rival firm.

On December 30, 2020 Ticketmaster agreed to pay a $10 million criminal fine and entered a three-year deferred prosecution agreement in federal court in Brooklyn to resolve five counts of computer intrusion and fraud offenses.

Unfavorable Analyst Estimates

Analysts expect the company’s revenue to decline 92.5% for the about-to-be reported quarter (ended December 31, 2020) and 67.1% for the quarter ending March 31, 2021. Its EPS is expected to decrease 161.4% for the quarter ended December 31, 2020 and 61.7% for the quarter ending March 31, 2020.

Wall Street analysts expect the stock to hit $68.82 in the near term, which indicates a potential decline of 18.5%.

POWR Ratings are Consistent with LYV’s Bleak Outlook

LYV has an overall rating of F, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Of these categories, LYV has a grade of D for Value. This is consistent with the stock’s stretched valuation.

LYV’s negative values for ROE and ROA are reflected in the stock’s grade of D for Quality.

Apart from these, we have also given LYV grades for Growth, Momentum, Stability and Sentiment. Click here to access all LYV’s ratings.

The stock is ranked #13 of 13 stocks in the F-rated Entertainment – Sports & Theme Parks industry.

Bottom Line

Because concerts and live music events have  yet to be resumed, LYV could continue to struggle. Although  the company is trying to stay afloat, relying on online sales of tickets for future events, its  financials were weak even before the  pandemic. Consequently, we think it is wise to avoid the stock for now.

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LYV shares were trading at $89.93 per share on Monday afternoon, up $1.84 (+2.09%). Year-to-date, LYV has gained 22.39%, versus a 3.68% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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