Shares of UFC and WWE parent company are primed to rally 40%, Jefferies says

Jefferies thinks investors should buy up TKO Group, calling the company a "knockout combo" of two major entertainment giants.

Analyst Randal Konik initiated TKO, the merger of World Wrestling Entertainment and the Ultimate Fighting Championship, with a buy rating and assigned a 12-month price target of $120. That price target suggests shares could jump more than 39% from Friday's close.

Shares of the company, which made its public trading debut Sept. 12, are up 7.4% this year. The company is 51% owned by Endeavor Group Holdings, which owns UFC and Hollywood talent agency WME, and 49% owned by WWE shareholders. According to Endeavor CEO Ari Emanuel, after spending the first 18 months integrating UFC and WWE, TKO will begin to acquire other sports properties and aim to expand internationally.

"With these assets now operating under the same roof, we believe they can generate meaningful top-line and EBITDA growth via rights renewals, and synergies including maximizing gate performance, cross-pollinating across fan bases, sponsorships, and other cost efficiencies," Konik wrote in a Monday note.

Konik called UFC a "best-in-class" entertainment play that is well-positioned to generate strong growth and margins, especially given its media rights expansion opportunity, sponsorship growth and compelling live events.

Now coupled with WWE, Konik thinks TKO's management can drive meaningful top-line growth, attractive margin expansion and significant free cash flow generation of more than $3.6 billion for the company between 2023 and 2026.

With these expectations, Konik added that, "we would expect mgmt to review its capital allocation strategy and look to authorize a share repo program or dividend plan."

The analyst also noted that TKO