UBS has initiated coverage on Liberty Formula One with a Neutral rating and a price target of $85.00. The firm's analysis acknowledges the significant growth in Formula One's monetization, driven by its expanding popularity beyond traditional European markets.
UBS expects a slowdown in future growth due to factors such as lower operating leverage on team payments and limited potential for race promotion in the near term. Despite this, Liberty Formula One has experienced substantial revenue and OIBDA growth, capitalizing on the rising demand in the rights marketplace and the experience economy.
UBS projects that primary F1 revenues and OIBDA will grow at compound annual growth rates (CAGR) of 8% and 12%, respectively, from 2024 to 2026, slightly below market expectations. The current valuation of Liberty Formula One is considered appropriate given the anticipated normalization of growth rates.
Rosenblatt Securities, however, remains optimistic about Liberty Formula One's future, citing factors such as high free cash flow conversion rate, strengthening sponsorship cycle, increasing promotion fees, and an improving margin profile.
Liberty Media Corporation, the parent company of Liberty Formula One, reported solid second-quarter results and is optimistic about its margin and cash generation for the remainder of 2024.
Liberty Formula One has a market capitalization of $18.68 billion and has experienced significant revenue growth. However, the high P/E ratio raises concerns about the stock's valuation. The stock is trading near its 52-week high, supporting UBS's view that the valuation may be appropriate given the expected normalization of growth rates.
Liberty Formula One's ability to adapt to evolving market conditions will be crucial for its future trajectory.