Since Jeremy Lin's first start, Madison Square Garden Company's (MSG) stock price has increased by 10.23 percent at the close of trading on February 13th. That's an increase in market cap of $227 million. Due to the current bullish market and the company's holdings other than Madison Square Garden, not all of this value increase can be attributed to the phenom, but it's definitely a great water cooler statistic. This bullish activity on the stock begs the question, is MSG a good buy right now? In my opinion, the answer is yes.
Knowing the Company
Madison Square Garden Company owns a lot more than the world's most famous arena. Its holdings contain Madison Square Garden itself, the New York Knicks, the New York Rangers, the MSG Networks, Fuse TV, a lease on Radio City Music Hall, a lease on the Beacon Theatre, and a lease on the Chicago Theatre. The company has no debt, so investing in MSG stock gives you exposure to its assets with no leverage concerns. This is rare for companies with a lot of plant assets, especially when comparing MSG to an REIT.
The company has a P/E ratio of 33.4 which is high, but well justified. In its current fiscal year ending in June 2012, Madison Square Garden is expected to report an adjusted EPS of 94 cents. In the next year, earnings are expected to shoot up to $1.28 per share, giving the company a forward P/E ratio of 25.3. Despite this being a high number, there is a lot more that investing in MSG brings for investors.
The value behind MSG is the assets it owns. With a market cap of $2.45 billion, there is a lot of asset value within the company. Not only does this include 2 major New York City sports franchises and an arena, but also media rights and operating contracts. Since physical assets and sports franchise values generally garner high returns in their asset values alone, consistent earnings combined with these valuable assets provides a lot of shareholder value.
Despite its bull run over the last few days, there is still a lot of upside potential for Madison Square Garden company. Its strong asset portfolio and expected earnings growth support its current stock price. In addition, the emergence of Jeremy Lin may actually add a lot of long term value to the company's stock price. With a large following in China, MSG can potentially make loads of money from a Chinese broadcasting deal and a new found heart for the New York Knicks may add substantial value for the team. I believe now is the time to buy Madison Square Garden Company stock and I give MSG a one year target price of $39.
Additional disclosure: I am not a Knicks fan