Time Warner: Now Is the Time to Tune In to TWX Stock

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When Jeff Bewkes took over as Chief Executive of Time Warner (TWX) in 2007, he put the world’s largest media company on a “diet.” He jettisoned underperforming units such as AOL, Time Warner Cable and Time Inc. so that he could focus his attention on core businesses such as the Warner Bros. studio.

Time WarnerLately, though, that business has struggled.

According to Box Office Mojo, the New York-based company grossed $1.15 billion so far thus year, a decline of 14% from the same period a year ago as movies such as Tammy, an R-rated romp starring Melissa McCarthy; Jersey Boys, Clint Eastwood’s take on the hit Broadway musical; and Adam Sandler’s Blended failed to strike a chord at the box office.

For a company that topped the movie market for 5 out of the last 10 years, this is a depressing turn of a events. Rivals such as 20th Century Fox, which is owned by 21st Century Fox, (FOXA) and Walt Disney’s (DIS) Buena Vista Studios both reported cumulative box-office gains of 39% and 9% respectively during that same time.

Despite investors’ concerns about Warner Bros., TWX stock has been a solid performer, gaining 13% this year, outperforming Viacom (VIAB), CBS (CBS) and FOXA, which all posted declines. Thanks in part to the success of Frozen, DIS shares have surged more than 16%, although there are plenty of other pieces keeping Disney stock afloat.

With a price-to-earnings multiple of 16, TWX stock is trading at a discount to DIS’s 21, CBS’s 17 and FOXA’s 20. TWX stock trades at about a 11% discount to its average 52-week price target of $83.54. Given the totality of the assets and the potential improvement in its business, there is every reason to expect that TWX stock could move even higher.

Warner Bros. and TWX Stock Will Be Fine

And while the theatrical entertainment side of Warner Bros. is struggling a bit, there’s still a lot that’s going well.

Warner Bros. is a huge player in television production, with hits like The Big Bang Theory, The Voice and Arrow, which span a number of broadcast networks. According to TWX’s latest 10-Q, revenue from Television Product rose 6% to $1.052 billion, while Theatrical Product revenue fell 6 percent to $1.494 billion. In other words, even when the movie business stinks, the television operation hums along just fine.

Moreover, Time Warner has plenty of other tricks up its sleeve. HBO, for instance, reported double-digit gains in revenue and operating income in the latest quarter, which isn’t too shabby for a businesses that, in the view of many in the media, is under attack from the growing number of people who are cutting ties with their cable company.

The Turner Networks also posted gains in the latest quarter. While many investors are familiar with their main channels such as CNN, which I have long argued Time Warner should sell, and TNT and TBS, the one hidden gem there is Cartoon Network’s Adult Swim programming: a block of adult-oriented programs aimed at young-adult viewers that runs at late night. Why is it such a gem? It pulls in lots of young adult viewers — advertisers’ dream audience — and it competes with ESPN — the golden goose of cable TV — for total day viewers.

TWX stock could take off if the company is able to turn around the movie business at Warner and continue to keep a steady hand on its other cash cows such as HBO. Without the distraction of poorly performing units, that is going to be much easier to do than In years past. The company’s other businesses should also continue to post good results for the foreseeable future.

As of this writing, J0nathan Berr did not hold a position in any of the aforementioned securities.

Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/twx-stock-time-warner/.

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