Time Warner Shares Gain on Positive View

Time Warner Shares Gain on Positive View
Tuesday April 3, 4:01 pm ET
Time Warner Shares Up After Analyst Reiterates 'Buy' Rating, Citing Strength After Spinoff

NEW YORK (AP) -- Shares in media conglomerate Time Warner Inc. rose Tuesday after Citigroup said investors are undervaluing the stock after the company spun off its cable operations.
Time Warner comprises online unit AOL, Warner Bros. studios, cable networks such as HBO and CNN, and publishing properties including Sports Illustrated and Time magazines. Last month, the company broke off its cable operations, giving investors the chance to place a value on Time Warner Cable, the second largest cable operator in the country, independent of the conglomerate's other assets.

Citigroup analyst Jason Bazinet said Time Warner's remaining assets are "inexpensive," and predicts the stock can add about 20 percent in the next year. He rates it "Buy" and assigns a price target of $24.

Time Warner shares rose 44 cents, or 2.2 percent to close at $20.51 on the New York Stock Exchange. In the past year, the stock has ranged from $15.70 to $23.15. Before Tuesday's trading, the stock was off about 20 percent from its 52-week high.

"To our surprise, the pull back in Time Warner shares is almost exclusively tied to movements in Time Warner Cable," Bazinet wrote. "In effect, Time Warner is trading just like a cable stock."

While Time Warner still owns 85 percent of the cable company, those assets comprise just 40 percent of the company's enterprise value, which adds equity value, or market capitalization, to debt.

The analyst argued that, based on calculations of debt, equity value and free cash flow, the implied value of the company's stock is $11 per share, well below his price target.

Time Warner Cable stock closed up 20 cents, at $37.25 on the NYSE.