Dj Liberty Formula One Gr Is Maintained At Overweight By Morgan Stanley

Liberty Media Series C Liberty Formula One has an average rating of overweight and mean price target of $103.27, according to analysts polled by FactSet.

By Paul R. La Monica

Formula One has sputtered recently. But with earnings in the rearview mirror, a spinoff coming, and a new season of Drive to Survive about to start, investors should use the weakness to scoop up its shares before they get back up to speed.

Liberty Formula One, the tracking stock of John Malone's Liberty Media, is down 3.2% on Thursday after the company reported sales of $1.17 billion, below forecasts for $1.36 billion. The stock has fallen more than 10% over the past two weeks, as investors used increased market volatility as an excuse to take profits in a stock that had gained more than 25% over the past 12 months. Now it looks set to rev back up.

Formula One isn't simple. Tracking stocks, as their name implies, track the performance of a part of a company but don't give investors direct ownership. Malone has been a fan of tracking stocks, using them in the past for stakes in Sirius XM and the Atlanta Braves baseball team. But many investors have complained that tracking stocks are too convoluted. In the case of Formula One, it also represents a 30% stake in concert promoter and Ticketmaster parent company Live Nation. And there are two share classes, the C shares, which include no voting rights, and the lower-volume A shares, which do.

Malone has heard the criticism and now plans to spin off Liberty Live Group into a separately traded company. With the split set to close later this year, F1 will be a cleaner pure-play story. Matthew Harrigan, an analyst at Benchmark, boosted his price target on F1 stock in late December, citing "the removal of a 10% complexity discount" and "the enthusiastic global market for sports assets."

Live sports broadcasts remain popular despite the rapidly changing landscape for television viewing. ESPN's U.S. ratings for F1 telecasts have averaged well over 1 million viewers a race for the past three years. That gives Formula One leverage with media partners as it negotiates a new broadcast deal for 2026. According to media newsletter Puck, ESPN may not bid for an extension, leaving Netflix and Comcast-owned NBC as contenders to win new rights.

Evercore ISI analyst Kutgun Maral estimates the average annual value for a new three-year deal for U.S. rights could increase from $85 million to $150 million. Maral also said F1's increased popularity is driving more marketing deals, and he expects sponsorship revenue this year to jump 30% to $835 million. He expects the stock to jump too, to $130, up 42% from Thursday's midday levels of about $91.50.

That popularity should only increase as its new F1 season kicks off in Australia on March 16 and the latest episodes of Netflix's Drive to Survive reality series stream a week before that. Fans are flocking to the racetracks too. F1 said in Liberty Media's fourth-quarter earnings report that attendance was up 9% in 2024, helping to increase annual revenue by 6%. The sport could get a further image boost now that seven-time world champion Lewis Hamilton, who is joining Ferrari this season, signed a deal to be a brand ambassador for Lululemon. F1 could also get a lift from the F1 movie from Apple Original Films starring Brad Pitt that comes out in June. (Hamilton is a co-producer.)

F1 isn't limiting its empire to car racing. It hopes to acquire motorcycle racing company MotoGP. The deal is currently being reviewed by the European Commission, but TD Cowen's Lance Vitanza expects the merger to go through and adds that MotoGP "would benefit from Liberty Media's expertise in enhancing global reach, improving digital engagement, and attracting new sponsorships."

For F1 stock, the yellow caution flag is about to be pulled back — and replaced with the checkered victory flag.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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