Jefferies on Thursday came out with a bullish stance on Spotify (NYSE:SPOT), Warner Music (NASDAQ:WMG), and Universal Music (OTCPK:UMGNF), rating them all as “buy,” with Spotify being the top pick out of the three music streamers.
On Spotify, the research firm expects consistent price hikes, bundling, and gross margin expansion. “We are confident in SPOT’s ability to comfortably deliver sustainable 15%+ rev growth over the next 3 years… We believe there is room for price increases at least every other year,” Jefferies wrote in a July 11 note.
On Warner Music, Jefferies views the current entry point for WMG as attractive. “With the stock down 17% YTD and the valuation now at a ~40% discount to UMG, we expect the stock to re-rate on more consistent release slates and margin expansion via the recently announced cost savings program… We note that if WMG’s multiple were to re-rate to its historical average discount, the stock would trade to $40, representing 33% upside to the stock,” they said.
Meanwhile, Universal Music is seen by the research firm to be better positioned over the long term due to its experienced management team, and superior artist roster, which includes Taylor Swift, the Weeknd, and Rihanna, among others.
SPOT has been assigned a price target of $385, WMG at $38, and €33 for UMG. Shares of Spotify are up 60.5%, Warner Music down 15.7%, and Universal Music up 1.8% so far this year.