Can Time Warner Be A Value Play? (TWX)

Mar.28.06 | About: Time Warner (TWX)

After a plethora of TWX coverage, the Lazard valuation report, and hours of CNBC bickering on a TWX break-up, I finally thought I'd give it a look.

Time Warner, Inc. operates as a media and entertainment company. It operates in five segments: America Online, Inc. (NYSE:AOL), Cable, Filmed Entertainment, Network, and Publishing. The AOL segment provides interactive services, Web brands, Internet technologies, and e-commerce services in the United States and Europe. (Source: Y! Finance)

Catalysts that rank TWX a value play and a possible buy:

1) The $80 billion company earned $2.9 billion in 2005 on revenue of $43.6 billion. On a year-over-year basis, earnings for the quarter ended December 30, 2005 grew 21% over the same period in 2004; revenue climbed 7%.

2) Shares of Timer Warner are flat over the past 12 months, closing Wednesday at $17.05 (After market hours), or 19.6 times analysts’ consensus forecast for earnings per share of $0.88 in 2006. The company’s price-earnings growth (NYSE:PEG) ratio is 1.57, based on a five-year annual growth rate of 12.5%.

3) TWX’s board responded to dissident shareholder Carl Icahn with an increase of its stock repurchase program from $12.5 billion to $20 billion, with $15 billion of that total scheduled to be completed by the end of 2006.

4) The board also agreed to seek out an additional $500 million of cost savings by the end of 2007, raising its total cost cutting target to $1 billion over the next 22 months. In addition, TWX also agreed to recommend the election of two new independent directors to its board.

5) The acquisition of cable operator Adelphia will add to TWX's cable assets.

6) Even though the acquisition and the buyback will likely increase the company’s debt load to a total of $35 billion, the company’s improving cash flow picture makes the additional debt strategically effective.

7) By taking advantage of low interest rates to leverage up and reduce its outstanding share count, TWX will be boosting its bottom-line earnings, since TWX's cost of capital is less than its earnings power.


TWX 1-yr Chart

Disclosure: I don't own shares of TWX

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