“Owning a team is cool, but owning a sport is even cooler.”
That’s the key to Morgan Stanley’s bullish thesis about Formula One, and why shares of the company that owns the car racing event are in a position to rally. The bank says Liberty Formula One is the best stock to own in the sector.
The subsidiary of Liberty Media Corporation owns 100% of the exclusive rights to the F1 World Championship. The stock has struggled this year, but Morgan Stanley analysts sees big potential.
“FWONK is our Top Pick in US M&E, as we have increased conviction in the company’s growth outlook,” the bank’s Katy Huberty wrote in a note to investors. “It has a young, affluent, highly engaged, and growing global fan base of over 800 million (growing +12% Y/Y).”
Formula 1 has surged in popularity in the US recently, with a quickly growing and dedicated fan base. The once-niche European motorsport has become the focus of intense bidding wars among media giants vying for the right to stream the races.
While Morgan Stanley recently lowered its Liberty Formula One price target from $120 to $117, the forecast still implies upside potential of more than 31% from Wednesday’s price.
Huberty said her team sees the racing event poised to benefit as sports and live entertainment continue to intersect.
“We believe the scarcity, urgency, and interactivity of sports and live experiences should drive superior monetization and pricing power,” she added.
The stock edged out other major sports and media names to reach the top of Morgan Stanley’s Live 5, including TKO, the owner of World Wrestling Entertainment (WWE), and media titan Disney.
“We prefer sports equities that not only deliver asset appreciation but also generate strong cash flows built on contractually locked in revenue streams,” the analysts write. “That includes in particular FWONK and TKO.”
Here’s the bank’s list of top stocks in the sector:
- Liberty Formula One (FWONK): “The market is undervaluing Liberty Formula One which now trades at a ~25% discount to the value of the aggregate F1 teams despite the significant cash flow generation and the ownership of MotoGP.”
- TKO Group (TKO) :”TKO offers the one-two punch of highly visible and recurring core businesses from locking in multi-year media rights deals on the UFC and WWE.
- “Live Nation (LYV): “The entertainment experience economy is driven primarily by the top half of consumers by household income, we believe, making it somewhat price inelastic and more resilient to macro
pressure.” - Sphere Entertainment (SPHR): Morgan Stanley said it has “increased conviction on additional Spheres beyond Las Vegas/Abu Dhabi/Maryland” and “momentum at Sphere Experiences despite weak Las Vegas attendance” as reasons for bullishness.
- Disney (DIS): “DIS should benefit from streaming market repair as it invests in technology and international content … we also see experiential entertainment assets, especially Disney’s Experiences segment, as insulated from AI disruption risk.”
Morgan Stanley maintains overweight ratings on all five entertainment and media stocks on its Live 5 list. Sphere has outperformed all others by a significant margin on a year-to-date basis, with gains of over 50%.
“One thing we believe strongly is that in an increasingly fragmented and distracted world, nothing captures viewer attention more than sports and live events, which carry urgency, unpredictability, and a sense of communal participation that reflect and shape the culture,” the note reads.
