Warner: Estimates Raised, But "Song Remains the Same"

Goldman Sachs sees possible short-term upside for Warner Music (WMG), but remains bearish about long-term prospects for the music industry. “Stay on the sidelines until we have better visibility into returns from new business initiatives…” Goldman’s Q2 revenue, EBITDA, and EPS forecasts for Warner: $760 million, $88 million and -$0.19. Goldman:

…we expect WMG to benefit from a positive content cycle, driving a fifth consecutive quarter of yoy share gains. We focus on new 3QFY08 releases from R.E.M. and Madonna to carry momentum forward, and we are raising our FY2008 and FY2009 EBITDA estimates to $450 mn and $443 mn, respectively to reflect continued content-driven success… However, we believe continued market share gains will become increasingly difficult and tepid industry fundamentals will trump a favourable content cycle.

Rating remains neutral. FY2008 and FY2009 EPS to -$0.30 and -$0.25 from -$0.37 and -$0.29. 6-month price target $to 6.50 from $6.00.


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