Shares of Live Nation (NYSE:LYV) are in focus after independent research firm Hedgeye added LYV stock to its list of best short ideas. The firm noted demand for Live Nation’s products, such as concert tickets, will decline after a strong summer and fall season.
In its second-quarter earnings, the company demonstrated significant growth when compared to pre-pandemic 2019 levels. All financial comparisons in the company’s Q2 results are compared to these levels to highlight the effects of the re-opening theme.
For the quarter, operating income tallied in at $319 million, up 86%. Live Nation also had its highest quarterly attendance of more than 33 million fans across 12,500 events. Meanwhile, 100 million tickets were sold as of June 30. This figure has already exceeded the total number of tickets sold in 2019. The company added:
“Every key operating metric is at an all-time high, as we promoted more concerts, had more fans attend shows where they spent more money, sold more tickets and enabled brands to connect with fans at a scale we have never seen before.”
Still, Hedgeye expects Live Nation’s growth to slow significantly. Let’s get into the details.
Hedgeye Picks LYV Stock as a Best Short Idea
Analyst Andrew Freedman expects the company to enter into a “negative revision cycle” over the next six to nine months. As a result, consensus analyst estimates may reflect higher demand than what will actually occur. For the full-year, analysts expect earnings per share, or EPS, of 60 cents and revenue of $14.76 billion. For 2023, analysts are forecasting EPS of $1.20 and revenue of $16.34 billion.
Freedman also believes growth will slow down to “below long-term trend levels” heading into 2023 and 2024. This, the analyst contends, will hamper margins and terminal value, or TV, assumptions. TV is the value of a company beyond the period when free cash flow can no longer be accurately estimated. It can also assume a company will grow at a set rate for perpetuity. Analysts sometime use 2% to 3% as the TV growth rate in relation with the risk free rate.
As a result, Freeman sees potential downside of 30% for LYV stock within the next six to 12 months. Hedgeye will also host a presentation to discuss LYV as a short idea next Wednesday.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
