April 13, 2009

By By Associated Press

Warner Music Group Corp. shares surged 13 percent Monday after a Goldman Sachs analyst upgraded the stock to "Neutral" from "Sell" based on the slowing rate of decline of music sales and superior management.

Shares rose 41 cents, or 13.3 percent, to $3.49 in midday trading, although they are down from a 52-week high of $9.05 reached last May.

Analyst Ingrid Chung noted that music sales in the quarter to March fell just 7 percent from the previous year, compared to a 15 percent decline in the quarter to December.

Amid the decline, Warner Music, whose artists include Estelle, Josh Groban and Nickelback, expanded its market share in the U.S., to nearly 21 percent in the quarter to March from 20 percent in March 2006, she said.

"Despite continued negative industry headwinds and Warner Music Group's culled artist portfolio, Warner Music Group has continued to execute better than peers," she wrote in a research note.

Chung also noted that Apple Inc.'s decision to price songs on its iTunes music store at 69 cents, 99 cents and $1.29, instead of just at 99 cents as it had previously, was a "longer-term positive" for the record labels and "could drive higher volume and higher average revenue per track."

She expected the company to post a 20 percent decline in earnings before interest, taxes, depreciation and amortization in the fiscal second quarter to the end of March, at $79 million. She also expected an 11 percent decline in revenue to $715 million.

But the stock has fallen 63 percent since Chung downgraded it Aug. 4, versus a 41 percent decline for its peers and a 33 percent drop in the Standard & Poor's 500 index.

She set a six-month price target at $3.50.

Subscribe to Billboard magazine today!