On Thursday, Universal Music Group NV (AS:UMG:NA) (OTC: UMGNF) received an upgrade from CFRA, shifting from a Hold to a Buy rating, with a new price target set at EUR30.00. The upgrade comes after the company experienced a slower subscriber growth in the second quarter compared to the first, which CFRA believes presents a buying opportunity at the current price level.
The slower growth in subscription revenue, which dipped to nearly 7% in Q2 from 12.5% in Q1, led to investor disappointment. However, Universal Music Group has indicated that the second half of the year is typically the strongest for subscriber engagement and growth. The company's strategy to rebound may involve addressing the deceleration in advertising platform partner revenue.
CFRA's positive outlook is supported by Universal Music Group's roster of top artists, including Taylor Swift, Billie Eilish, Olivia Rodrigo, Ariana Grande, Chappell Roan, and Sabrina Carpenter. In the U.S. market, the company boasted 11 of the top 15 albums in the first half of the year and maintained significant presence in Japan and the U.K. with top-charting artists and albums.
The confidence in Universal Music Group's potential to recover in the latter half of 2024 is further bolstered by the company's consistent performance. CFRA maintains its EUR30 price target based on a forward Total Enterprise Value/Earnings Before Interest, Taxes, Depreciation, and Amortization (TEV/EBITDA) multiple of 27x, which is close to the three-year historic average of 29.0x.
CFRA has kept its earnings per share (EPS) estimates steady from the previous day, projecting EUR1.02 in 2024 and EUR1.12 in 2025. This stability in EPS forecasts, combined with the company's strong artist lineup and historical performance, underpins CFRA's upgraded rating and price target for Universal Music Group shares.
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