On Thursday, CFRA made an adjustment to Warner Music Group's (NASDAQ:WMG) financial outlook, reducing the stock's price target from $36.00 to $30.00 while maintaining a Sell rating. The firm cited a valuation based on a forward TEV/EBITDA of 13.0x, which is below the 14.8x peer average that includes industry leaders such as Universal Music Group N.V. (AS:UMG) and Live Nation Entertainment Inc . (NYSE:LYV).
The analyst pointed to Warner Music Group as a potential relative underperformer in comparison to its direct peers in 2024.
Despite a 38% increase in share price since the end of last May, CFRA believes that the market's elevated fundamental expectations for Warner Music Group are unwarranted, given the company's forecast for only single-digit growth.
The firm has maintained its earnings per share (EPS) projections for Warner Music Group at $1.20 for 2024 and $1.50 for 2025. Moreover, revenue forecasts remain at $6.5 billion for 2024 and $6.8 billion for 2025.
CFRA's EBITDA estimates for Warner Music Group stand at $1.46 billion for 2024 and $1.56 billion for 2025. When compared to Sony (NYSE:SONY) Music Publishing and Universal Music Group, which each hold market shares in the mid-20% range, Warner Music Group's low-teens market share reflects the highly competitive nature of the industry.
The firm suggests that Warner Music Group's role as a music wholesaler and the challenges it faces in distributing artists' releases through TikTok and other social media channels could impact its performance.
The report also notes Warner Music Group's ownership and financial structure as potential factors affecting its stock performance. Access Industries holds a significant 72.3% ownership in the company, and Warner Music Group's high leverage is indicated by a total debt to total capital ratio of 87.5%.
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