Wells Fargo is bullish on World Wrestling Entertainment, Inc. (NYSE:WWE). The financial giant initiated coverage on the wresting entertainment company this morning with a rating of “Outperform” and a price target range of $22 to $24, representing a 41.21% to 54.04% upside to the stock’s closing price of $15.58 per share yesterday. Key in Wells Fargo’s thesis for its bullish position on World Wrestling Entertainment is how underrated the company’s video streaming service WWE Network is by investors and the market. Wells Fargo notes that WWE was the first content company to launch an over-the-top streaming service, in February 2014 with the WWE Network, although the service underwhelmed Wall Street by missing its one million subscriber target by the end of 2014. However, Wells Fargo says that “sentiment turned this year”, thanks in part to 1.33 million subscriptions for WrestleMania 31 late in March, one of the most critically acclaimed WrestleManias in recent memory. The financial firm notes that the stock is up by 26% year-to-date and it thinks investors are still not giving WWE “enough credit for the substantial upside from here”. The stock jumped to as high as $16.31 per share early today or 4.69% higher than its closing price yesterday.
As Wells Fargo has proclaimed its confidence in World Wrestling Entertainment, Inc. (NYSE:WWE), so have prominent investors by the end of the first quarter. The number of bullish hedge fund positions moved up by 27% at the end of said period to 14 compared to the 11 hedge funds in our database with WWE positions at the end of 2014. The total value of holdings mirrored that increase with a jump of 26.93% to $81.91 million by the end of March from $64.53 million at the end of December. This is a substantial increase, as the stock only appreciated by 13.53% from the start of January to the end of March. It also appears that the smart money was right, as the stock has gained another 17.77% from the start of April through the end of June.
Hedge funds and other big money managers tend to have the largest amounts of their capital invested in large and mega-cap stocks because these companies allow for much greater capital allocation. That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks like World Wrestling Entertainment, Inc. (NYSE:WWE) there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 135%, beating the broader market by over 80 percentage points through the end of April (see the details).
Another area Insider Monkey follows is insider trades. These transactions can tell people whether certain key insiders of companies are betting on their stocks. For World Wrestling Entertainment, there were no share purchases within this year by insiders. The last sales were by Executive Producer Kevin Dunn on February 25, of 40,000 shares, and by President Michael Luisi on February 24, of 15,000 shares. Taking these into account, we’re going to look at the hedge fund action regarding World Wrestling Entertainment, Inc.