Analyst Insights

Deutsche Bank Reaffirms Live Nation's Potential Amid DOJ Trial Concerns

Deutsche Bank maintains a price target of $121, highlighting 28% upside driven by strong concert demand and double-digit income growth projections

By Harrison Wall

7/11, 11:12 EDT
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KEY FIGURES

Stock Rating: Buy
Revised Price Target: $121.00
Stock Price (July 10, 2024): $94.43

Summary Points

  • Live Nation's DOJ anti-trust trial set for March 2026, potentially alleviating stock overhang and allowing focus on strong fundamentals.

  • Deutsche Bank maintains $121 price target for Live Nation, implying 28% upside based on expected double-digit adjusted operating income growth.

  • Despite some weak demand for specific tours, overall concert demand remains healthy with 100 million tickets sold year-to-date.

Court Scheduling Update: A Positive Development

Deutsche Bank's latest report on Live Nation (LYV) centers around the upcoming 2Q24 earnings release and significant updates regarding the ongoing DOJ anti-trust litigation. The U.S. District Court has issued a case management and scheduling order, setting the trial to commence on March 2, 2026. This timeline is notably shorter than initially anticipated, which Deutsche Bank views as a positive development. The quicker resolution of the DOJ case could help alleviate the overhang on Live Nation's stock, allowing the market to refocus on the company's strong fundamentals.

Price Target and Stock Rating: 28% Upside Potential

Deutsche Bank maintains a constructive view on Live Nation, setting a price target of $121, which implies a 28% upside potential from current levels. The stock is rated as a buy, driven by the expectation of consistent double-digit growth in adjusted operating income. The price target is based on a 4.3% unlevered free cash flow (UFCF) yield on 2025 estimates, with the stock currently trading at a 4.4% UFCF yield on 2024 estimates, or 5.0% after adjusting for the $185 million AstroWorld settlement. The investment thesis hinges on robust demand, increasing supply, and value-add initiatives to improve monetization across the business.

Demand Concerns and Market Dynamics

Despite some anecdotal evidence of weak demand for certain tours, Deutsche Bank believes the overall demand for live concerts remains healthy. The report highlights that Live Nation's promotions business sold 100 million tickets year-to-date, reflecting a slight year-over-year increase. TicketMaster also saw a 5% year-over-year growth in fee-bearing ticket sales. However, the report acknowledges that the cancellation of major tours by artists like the Black Keys and Jennifer Lopez, as well as lagging demand for events like Coachella, could be indicative of individual circumstances rather than a broader industry trend. "We think these examples are largely a reflection of the individual circumstances surrounding those events, and are not necessarily indicative of the health of the overall industry," the analyst notes.

Macro Influences and Strategic Adjustments

The report also considers macroeconomic factors, such as the potential impact of the upcoming U.S. presidential election. A Trump victory could lead to a less aggressive stance on anti-trust enforcement, increasing the likelihood of a settlement with the DOJ that would favor behavioral remedies over structural changes. This would be a positive outcome for Live Nation, as it would allow the company to maintain its vertically integrated business model. Additionally, the report mentions that Live Nation's Concert Week promotion in May saw a 20% increase in ticket sales per show for amphitheaters, indicating strong demand among price-sensitive concertgoers.

Valuation Recap and Outlook

Deutsche Bank's valuation of Live Nation at $121 per share is based on a 4.3% UFCF yield on 2025 estimates. The report also notes a 3.9% reduction in adjusted operating income (AOI) forecasts for 2Q24 due to lower stadium volumes, resulting in a 1.2% reduction in the full-year AOI forecast. Despite these adjustments, the overall outlook remains positive, driven by strong secular fundamentals and strategic initiatives aimed at improving monetization. The report concludes with a cautious note on potential risks, including the ongoing DOJ litigation and the possibility of softer demand becoming more common. However, the analyst remains optimistic, stating, "We believe the live music industry remains healthy in the aggregate."

"We believe the DOJ case represents a meaningful overhang for the stock, and the quicker the company can move past it the sooner the market can refocus on the positive fundamentals of the business," says the Deutsche Bank Analyst.