McMahon To Return To WWE’s Board: Shares Surge (But Are Now Pricey) (NYSE:WWE)

Vinny Mac is back. Just not as CEO.

World Wrestling Entertainment (NYSE:WWE) shares have rallied about 25% on news that the retired chief would re-join the board of directors of the sports entertainment company. A possible firm sale, speculated on Friday, added to this week’s gains. But is the stock’s valuation still decent? And what does the chart say? Let’s step into the ring.

According to CFRA Research, World Wrestling Entertainment, an integrated media and entertainment company, engages in the sports entertainment business in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. It operates through three segments: Media, Live Events, and Consumer Products.

The Connecticut-based $5.4 billion market cap Entertainment industry company within the Communication Services sector trades at a high 33.5 trailing 12-month GAAP price-to-earnings ratio and pays a small 0.6% dividend yield, according to The Wall Street Journal. Importantly ahead of earnings and with big news this week, the stock has a high 19% short interest.

The big news on Thursday was that former CEO Vince McMahon, who has majority voting power through Class-B shares, would return to the WWE Board after announcing his retirement from the CEO role back in July of 2022. Shares initially rallied 12% on that news. Then on Friday more developments came through that the company might explore a sale, with McMahon leading the effort, per WSJ reports. All of that helped send shares from about $70 to near $90 and just 15% away from an all-time high.

What’s interesting is that WWE performed well around the news that McMahon, who had been at the center of serious allegations, was departing his managerial role earlier this year. I pointed out positive price action in October. WWE went on to miss analysts’ earnings estimates in November, and shares fell to noted support.

On valuation, 2022 and 2023 annual earnings are seen as rising steadily while Q4 per-share profits may fall on a year-over-year basis. Yearly revenues, meanwhile, show an impressive CAGR from just $974 million in 2020 to nearly $1.4 billion seen in 2023. Despite that growth, Seeking Alpha has a poor F valuation rating with just a C+ growth rating.

I like to look at the PEG ratio in situations like this, and that forward-looking operating earnings and growth combination shows a near-sector median 1.39. The price-to-sales ratio is close to WWE’s five-year average at 4.22. With the latest jump, I see shares as somewhat richly valued here, so should a sale not go through, there may be a significant price decline – perhaps back to near that $70 level.

WWE: Earnings Outlook, Key Profitability Ratios

Looking ahead to future volatility catalysts, WWE has an unconfirmed Q4 2022 earnings date of Thursday, Feb. 2 after market close, according to Wall Street Horizon. No other events are on the calendar, however.

Corporate Event Calendar

The Options Angle

Digging into the upcoming earnings report, data from Option Research & Technology Services (ORATS) show a consensus EPS figure of $0.59 which would be a 16% decline from $0.70 of per-share profits earned in the same period a year ago. On the bullish side, WWE has topped analysts’ forecasts in each of the previous seven reports, but the stock has not had a consistently positive stock price reaction trend.

As for the Groundhog Day Q4 report, options traders have priced in a 6.4% earnings-related share price move. That could be slightly on the expensive side given muted recent earnings reactions.

Somewhat Expensive Options Ahead Of Earnings

The Technical Take

Following the bullish news that McMahon might be coming back to the helm at WWE, and with the added speculation that the firm could be for sale soon, shares are right back to uptrend resistance and about $10 below the all-time high. This appears to be a good spot to take profits. There’s now a significant price gap in the low $70s which is a risk.

Admittedly, the shares may trade more on the sale chatter rather than on the charts. Still, price action is usually the best indicator as it encapsulates all availably known information. I see resistance here in the upper $80s along with the $98 to $100 zone.

WWE: At Uptrend Resistance, Mind The Gap

The Bottom Line

I would be a seller on this positive news from WWE. The stock is not cheap, and the chart suggests further gains may be capped.