On Wednesday, TKO Group Holdings (NYSE: TKO) received a reaffirmed Buy rating and a $120.00 stock price target from Guggenheim. The endorsement follows TKO's announcement of a settlement agreement for two class action lawsuits, which had accused the company of violating the Sherman Act.
The settlement, totaling $335 million, will be paid in installments and is expected to be tax-deductible, potentially reducing the net cash payments to approximately $220 million to $250 million.
The litigation, initiated by former UFC athletes, was set to go to trial next month. Guggenheim views the settlement as a favorable outcome for TKO Group Holdings for several reasons. It eliminates the uncertainty associated with prolonged litigation.
Other than that, the financial burden of the settlement appears manageable, given TKO's reported cash on hand of $236 million at the end of the fourth quarter. Moreover, the company's net leverage for 2024 is projected to be in the low 2x range, comfortably below the management's target of up to 3x.
The resolution of this legal matter is seen as a positive step, particularly as it may facilitate the announcement of shareholder returns later in the year. This is contingent on the completion of the ongoing EDR strategic review, which is currently the other factor delaying such announcements.
Guggenheim does not anticipate that the settlement will materially affect the company's capital returns outlook over the coming years.
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