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UPDATE: BofA Securities Double Downgrades Warner Music Group (WMG) to Underperform

November 16, 2021 7:15 AM EST
Get Alerts WMG Hot Sheet
Price: $34.34 +0.38%

Rating Summary:
    11 Buy, 8 Hold, 1 Sell

Rating Trend: Down Down

Today's Overall Ratings:
    Up: 2 | Down: 23 | New: 24
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(Updated - November 16, 2021 7:35 AM EST)

BofA Securities analyst Jessica Reif Ehrlich downgraded Warner Music Group (NASDAQ: WMG) from Buy to Underperform with a price target of $42.00 (from $53.00).

The analyst comments "In light of our relative ratings system, we are downgrading Warner Music Group (WMG) to Underperform from Buy and reducing our price objective to $42 from $53. Our $42 PO is based on ~20x our CY22 OIBDA, which represents a discount to UMG’s ~24x multiple and also equates to a current P:G ratio of ~130% (vs. UMG’s >135%). In our view, WMG will continue to benefit from secular tailwinds in the music industry (pricing, penetration and new platforms) and we still believe in the company’s longer term growth story. However, we think shares are fairly valued and we see downside risk in the near-to-intermediate term given: (1) the~30% appreciation since Vivendi shareholders agreed to spin out Universal Music Group on June 22nd; (2) after a number of catalysts in 2021 (UMG spin, Spotify price increases/market launches, proliferation of new emerging revenue streams) there are limited near-term catalysts (through at least F1H22); (3) the ad-supported streaming business faces difficult comps; (4) mix shift toward businesses that were adversely impacted by COVID-19 (i.e. physical, live) will negatively impact margins (e.g. physical has ~15% points lower margins than streaming) and (5) FY22 FCF will be impacted by increased investment as capex will increase to $130mn+ (vs. $93mn in FY21)."

For an analyst ratings summary and ratings history on Warner Music Group click here. For more ratings news on Warner Music Group click here.

Shares of Warner Music Group closed at $45.35 yesterday.


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