BofA upgrades Warner Music to 'neutral' on cost-cutting, JV initiatives

Bank of America upgraded Warner Music Group’s investment rating from "underperform" to "neutral," citing improved visibility in earnings growth due to cost savings and new digital service partnerships.

The company's collaboration with Bain to acquire music catalogs worth up to $1.2 billion is expected to strengthen WMG's M&A strategy and enhance investments in artist and repertoire.

Despite potential challenges in the upcoming third-quarter results for subscription streaming, analysts believe foreign exchange benefits will help mitigate these issues.

Bank of America raised its price target for WMG from $28 to $33, indicating a potential upside of 12%, which contributed to a 4.4% increase in WMG shares during trading.

Recommendation Rating: Positive Outlook on Warner Music Group’s Future

On Wednesday, Bank of America elevated its investment rating for Warner Music Group (NASDAQ: WMG) from "underperform" to "neutral."

Analysts, spearheaded by Jessica Reif Ehrlich, highlighted that the recent announcement regarding cost savings, combined with new commercial partnerships with digital service providers (DSPs), is set to enhance visibility and predictability in the subscription streaming sector. This outlook is anticipated to establish a more promising trajectory for the company's earnings growth.

Moreover, the collaborative venture with Bain, aimed at acquiring music catalogs valued up to $1.2 billion, is expected to strengthen WMG's position. This will not only bolster its mergers and acquisitions strategy but also facilitate further investments in artist and repertoire (A&R) sourced from their cost savings, according to Bank of America.

Despite anticipating some challenging comparisons in subscription streaming for WMG's third-quarter results, analysts believe that the anticipated foreign exchange benefits will partially mitigate these difficulties.

Bank of America has raised its price target for WMG from $28 to $33, suggesting a potential upside of 12%. Following this optimistic outlook, shares of Warner Music Group experienced an uptick of as much as 4.4% during the current trading session.