World Wrestling Entertainment (WWE) Stock is a “New Normal” Buy Opportunity

Sports entertainment giant World Wrestling Entertainment (NYSE: WWE) is perpetually accommodating the ever-changing appetite and composition of its fan base and transforming the “New Normal” operating model along the way. The stock was already in a downward spiral before the COVID-19 pandemic plunged shares to multi-year lows at $29.10 on Mar. 17, 2020, bottoming out with the S&P 500 (NYSEARCA: SPY). The fallout from shelter-in-place mandates vaporized any prospects of live gate revenues moving forward. This coupled with stifled storylines and growing concerns of losing market share to competitor AEW set the bar low heading into Q1 2020 earnings. WWE stunned investors knocking the proverbial “ball out of the park” with blowout results exceeding expectations and further validating why this company has been the most dominant player in its industry. Investors looking to ride the momentum should monitor the pullbacks at the four opportunistic entry levels in the near-term market action.

Q1 2020 Earnings Shocker

The company released Q1 2020 earnings on Apr. 20^th,  beating both top and bottom-line consensus analyst estimates with $0.41 EPS  (+$0.16 beat) on $291 million revenues versus $259.45 million analyst estimates, for 59.5% year-over-year (YoY) growth. The adjusted OIBDA grew by 500% YoY to $77.3 million, which beat the original $60-65 million pre-COVID 19 guidance. The fallout from canceled live gate events was offset by reducing product costs and furloughs. The company bolstered liquidity by drawing on the $200 million revolver while suspending its $500 million share buyback program and cutting capex spending to $40-$50 million versus prior guidance of $180 to $220 million. WWE also introduced a new content delivery model of producing live events from their training facilities with more emphasis on storylines and special effects against an audience-less backdrop. This was implemented with its flagship WrestleMania live effect in April setting viewership records of 967 million views across all delivery channels, up 20% YoY by filling the void in live sports events to a captive stay-at-home audience.

WWE Adopts the “New Normal”

In an industry where creative and compelling storylines are the core driver of performance, it comes as no surprise that management was able to masterfully sculpt the perfect narrative in the backdrop of a global pandemic. Demonstrate the foresight and agility to quickly adjust to the changing landscape of content distribution to offset live event revenue losses with growth in digital and social media to capitalize on the gaping void with live sports events. WWE blunted the effects of COVID-19 by hitting all the right switches: shore up liquidity, capitalize on the void in live sporting events, bolster engagement with streaming content, revitalize interest with older fans and gain market share over competitors with augmented live events without fans. Digital video views grew 25% to 9.6 billion hours and consummation grew by 15%. WrestleMania had a viewership of 967 million, up 20% from previous year, despite no live audience or live gate revenues. It was the most social event in history with 13.8 million engagements throughout Facebook (NYSE: FB) , Instagram and Twitter (NASDAQ: TWTR) .

Analysts agree as they raised price targets promptly after Q1 results. Rosenblatt upped price target to $55 from $52. Morgan Stanley raised to $50 from $45.

Opportunistic Entry Levels

Using the rifle charts on a weekly time frame provides a larger lay of the landscape to gauge the price action and potential price inflection points. The weekly stochastic started the year with a bearish mini inverse pup that collapsed through the 20-band on the COVID-19 market panic. A weekly market structure low (MSL) buy triggered above the $41.79 Fibonacci (fib) level. The daily MSL triggered above $35.76 and the monthly MSL trigger sits above $46.98. While these three buy triggers may seem a bit lofty compared to the $29.10 lows made in March 2020, keep in mind the narrative has changed dramatically to shape a bullish sentiment heading into the 2^nd half of 2020. 

The monthly stochastic is still coiled under the 20-band (oversold), while the weekly stochastic is rising at the 40-band. The daily stochastic is attempting a cross up at the 70-band to form a pup breakout if the monthly MSL triggers above $46.98 for breakout to the upper Bollinger Bands (BBs) near the $49.64 fib. The $42.85 fib was the pullback support after Q1 2020 earnings and sets the weekly MSH sell trigger if broken. With this layout, we can derive the opportunistic pullback entry levels at the $42.85 fib, $41.79 weekly MSL trigger/15-pd MA support, $38.01 fib and $35.45 fib below the daily MSL trigger. Traders can use these fib levels to scalp reversions utilizing intraday time frames. Swing traders can scale for overnight to multi-day holds on converging daily/60-minute stochastic. Longer-term investors may consider a pyramid sizing dollar-cost averaging approach with a covered call strategy to buffer downdrafts.