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Warner Music (Nasdaq: WMG) and Spotify (New York Stock Exchange: Spot) may be competitors on some fronts, but are actually allies on others, and Guggenheim has developed a soft spot for both with rising ratings. Warner and Spotify investors was pleased with this development as its stock price rose.
Guggenheim Securities, through analyst Michael Morris, upgraded both stocks from their previous Neutral rating to their current Buy rating. Morris points to the impressive opportunity presented by the music industry as a whole, which will enable “market-leading economic growth” in the coming years. Further, Morris said, “…attractive earnings growth runways” are forming, driving earnings levels well above current consensus projections.
Interestingly, the announcement came just two weeks after Warner Music CEO Robert Kyncl called for price increases in the music streaming business. If everyone raises prices, it’s hard not to see an “attractive revenue growth runway.” Of course, such moves are not to be taken lightly. After all, piracy remains a threat to any artistic endeavor.
Analyst consensus considers both Spotify and Warner to be moderate buys. However, Warner has much bigger upside potential. Spotify’s average price target is $135, up 2.43%. in the meantime, Warner’s average price target of $37.91 yields a nearly 9x uplift at 20.54%.
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