Even if Warner Music Group Corp (NASDAQ: WMG) is poised to continue to benefit from secular favorable winds in the music industry and its long-term growth history remains intact, the stock appears “fair valued” and there is downside risk to short and medium term, according to BofA Securities.

Warner Music Group analyst: Jessica Reif Ehrlich lowered Warner Music Group’s rating from Buy to Underperform while lowering the price target from $ 53 to $ 42.

The thesis of the Warner Music Group: The stock has appreciated by around 30% since Vivendi shareholders agreed to split up Universal Music Group on June 22, Reif Ehrlich said in the downgrade note.

After several catalysts this year, “there are limited short-term catalysts (through at least F1H22),” she added.

As “the ad-supported streaming business faces tough lineup,” the “Warner Music Group mix shift to companies that have been negatively affected by COVID-19 will negatively impact margins,” wrote the analyst.

The company’s free cash flow in fiscal 2022 is likely to be ‘affected by the increase in investment, as investment will grow to over $ 130 million (from $ 93 million in the last year). ‘exercise 21) ”, she added.

WMG Price Action: Shares of Warner Music Group were down 4.34% to $ 43.38.