On Tuesday, CFRA raised the price target on shares of Tencent Music Entertainment Group (NYSE:TME) to $17.00, up from the previous target of $13.00, while maintaining a Buy rating on the stock. The adjustment follows Tencent Music's recent earnings report, which outperformed expectations.
CFRA's revised price target is based on a valuation of 29.8 times the firm's projected earnings per American Depositary Share (ADS) for 2024. This represents a 25% premium over Tencent Music's five-year average. The analyst believes that the company's consistent earnings beats may continue to propel the stock price upward, although market consensus estimates are quickly aligning with the company's performance.
Tencent Music's Online Music Services business is expected to experience robust growth, driven by an increase in subscribers and a higher penetration rate of paying users. Furthermore, the company is projected to see a rise in the average revenue per paying user, attributed to reduced discounts and enhanced upselling efforts.
The analyst also notes that Tencent Music's Social Entertainment Services segment, which had been a drag on earnings, is now showing signs of improvement and is likely to contribute positively to future revenue growth. Margin expansion is anticipated in 2024 due to revenue growth coupled with ongoing cost control measures.
An additional factor contributing to the positive outlook for Tencent Music is the company's inaugural dividend and its ongoing $500 million share buyback program, of which 53% remains. While these initiatives are seen as favorable for shareholder returns, they may also suggest a more conservative growth trajectory moving forward.
For the first quarter of 2024, Tencent Music reported a 3% increase in revenue, with music subscription revenue surging by 39%. The company also saw a significant improvement in gross margin, which increased by 7.8 percentage points to 40.9%.
InvestingPro Insights
In light of Tencent Music Entertainment Group's (NYSE:TME) recent earnings report and CFRA's price target upgrade, investors may find additional context through InvestingPro data and tips. The company holds a market capitalization of $22.79 billion and trades at a P/E ratio of 31.76, indicating a premium valuation relative to near-term earnings growth. Despite a revenue decline of 4.12% over the last twelve months as of Q1 2024, Tencent Music has demonstrated the ability to efficiently manage its finances, as evidenced by a substantial 103.3% return over the past year.
InvestingPro Tips highlight Tencent Music's financial health, with the company holding more cash than debt and the ability to cover interest payments comfortably. Analysts have revised their earnings upwards for the upcoming period, signaling potential continued growth. A notable 10.94% return over the last week further underscores the stock's recent performance. However, the RSI suggests the stock is currently in overbought territory, which could indicate a potential pullback.
Investors interested in deeper analysis can find 15 additional InvestingPro Tips for Tencent Music at Investing.com/pro/TME. For those looking to leverage this information, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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