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Should you short Live Nation (LYV) stock now?


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Shares of nation live (NYSE:LYV) are in the spotlight after independent research firm Hedgeye added LYV stock to its list of top short ideas. The company noted that demand for Live Nation products, such as concert tickets, will decline after a strong summer and fall season.

In its second quarter results, the company posted significant growth over pre-pandemic levels of 2019. All financial comparisons in the company’s second quarter results are compared to these levels to highlight the reopening theme effects.

For the quarter, operating profit reached $319 million, up 86%. Live Nation also recorded its highest quarterly attendance with more than 33 million fans across 12,500 events. Meanwhile, 100 million tickets have been sold as of June 30. This figure has already surpassed the total number of tickets sold in 2019. The company added:

“Every key operational metric is at an all-time high as we promoted more concerts, got more fans to attend shows where they spend more money, sold more tickets and enabled brands to connect with fans on a scale we’ve never seen before.”

Still, Hedgeye expects Live Nation’s growth to slow significantly. Let’s get into the details.

Hedgeye chooses LYV stock as the best short idea

Analyst Andrew Freedman expects the company to enter a “negative review cycle” over the next six to nine months. Therefore, consensus analyst estimates may reflect higher demand than will actually occur. For the full year, analysts expect earnings per share, or EPS, of 60 cents and revenue of $14.76 billion. For 2023, analysts forecast EPS of $1.20 and revenue of $16.34 billion.

Freedman also thinks growth will slow “below long-term trend levels” through 2023 and 2024. This, the analyst says, will hamper margins and terminal value, or TV, assumptions. VT is the value of a business beyond the period when free cash flow can no longer be accurately estimated. It can also assume that a business will grow at a set rate in perpetuity. Analysts sometimes use 2-3% as the growth rate for TV compared to the risk-free rate.

As a result, Freeman sees a 30% downside potential for LYV shares in the next six to 12 months. Hedgeye will also host a presentation to discuss LYV as a short idea next Wednesday.

At the date of publication, Eddie Pan held (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Eddie Pan specializes in institutional investments and insider trading. He writes for InvestorPlace’s Today’s Market team, which focuses on the latest news on popular stocks.

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