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On Wednesday, Bernstein SocGen Group adjusted its price target on shares of Tencent Music Entertainment Group (NYSE:TME), lifting it to $15.00 from the previous $13.00. The firm also reaffirmed its Outperform rating for the company’s stock. This change was prompted by Tencent (HK:0700) Music’s strong near-term earnings growth, which has been reflected in the stock’s impressive 23.39% gain over the past week. According to InvestingPro data, TME is currently trading near its 52-week high of $15.77, with analysts’ targets ranging from $12.99 to $19.09.
Analysts at Bernstein highlighted the company’s potential to continue surpassing expectations and raising forecasts in the short term. However, they also brought attention to the need for scrutiny regarding the sustainability of the business model and whether it warrants a higher valuation multiple. The firm’s ten-year projection indicates that Tencent Music is likely to experience steady but gradual earnings per share (EPS) growth, estimated at around 10% in the long run. InvestingPro analysis reveals the company maintains strong fundamentals with a GREAT financial health score and holds more cash than debt on its balance sheet.
The report by Bernstein acknowledged that Tencent Music’s growth drivers appear to be reaching their limits. The company is facing increasing competition and a decline in monthly active users (MAU), coupled with the constrained nature of advertising revenue growth. Based on these factors, Bernstein’s analysis suggests that the stock is reasonably valued at 18 times forward earnings, considering the fundamental valuation and associated risks and rewards. Current InvestingPro metrics show the company trading at a P/E ratio of 25.01x, with a healthy gross profit margin of 42.34% and strong cash flows that adequately cover interest payments. For deeper insights into TME’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
The reaffirmed Outperform rating indicates that Bernstein remains optimistic about Tencent Music’s performance despite these challenges. The firm’s adjusted price target suggests a belief in the company’s capacity to grow, albeit with the caution that the current business model’s longevity may eventually come into question.
In other recent news, Tencent Music Entertainment Group reported fourth-quarter earnings that surpassed analyst estimates, driven by robust growth in its online music services. The company posted adjusted earnings per ADS of RMB1.26, exceeding the consensus estimate, and reported revenue of RMB7.46 billion, marking an 8.2% year-over-year increase. Tencent Music’s music subscription business was a significant contributor, with revenues surging 18% year-over-year to RMB4.03 billion. The company also announced a substantial cash dividend of $273 million for the fiscal year 2024 and introduced a $1 billion share repurchase program.
Benchmark analysts maintained a Buy rating on Tencent Music, raising the price target from $15 to $19, following the announcement of a 45% year-over-year earnings growth for the fourth quarter. They anticipate an earnings growth CAGR of over 20% from 2024 to 2026, driven by high-quality growth in music subscriptions and advertising. Mizuho (NYSE:MFG) Securities also raised its price target for Tencent Music from $16 to $17, maintaining an Outperform rating. The firm highlighted the company’s strong quarterly performance and potential for double-digit revenue growth in its social entertainment segment.
Both Benchmark and Mizuho analysts expressed confidence in Tencent Music’s future prospects, citing its strategic initiatives and leading position in China’s online music market. The company’s focus on enhancing shareholder value through dividends and share repurchases was noted as a key component of its strategy. These developments reflect Tencent Music’s ongoing efforts to maintain growth and strengthen its market position.
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