Citi Maintains a 'Sell' on Warner Music Group (WMG) With Speculative Risk Rating

November 25, 2008 2:37 PM EST

Citi maintains a 'Sell' rating on Warner Music Group (NYSE: WMG). Price target $1.

Citi analyst says, "We rate Warner Music a Sell/Speculative Risk. We believe Warner may violate debt covenants in December 2008. This, in turn, would likely cause the Street's free cash flow estimates to moderate. As such, we expect near-term pressure on Warner's shares...we used to value Warner Music using a discounted cash flow analysis. However, we believe the intermediate-term moves in the firm's equity value are likely to be driven by changes in investor's expectations of near-term cash flow...We rate Warner Music Speculative Risk. Our risk rating is based on the following factors: 1) the inherent volatility of the music business which depends upon new releases to drive revenue, 2) the uncertainty the music industry faces as it migrates from physical sales to digital sales, 3) the ongoing risk of piracy."

Warner Music Group Corp. is a music content company that classifies its business interests into two areas: Recorded Music and Music Publishing.

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