Cash In On Time Warner Now

| About: Time Warner (TWX)
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Time Warner has a lot of activist investor speculation.

No activist has come forward yet, and the company has a potential catalyst with an HBO sale/spinoff.

However, there are reasons to be cautious, with a better buying opportunity looming.

Is Time Warner (NYSE:TWX) gearing up to sell itself? There's certainly plenty of speculation. This comes as Time Warner watched its revenues climb 5% to $6.6 billion in 3Q15, a solid showing for a company supposedly in a "dying" industry.

Now, there's also plenty of speculation that activist investors are circling Time Warner, no doubt, to get their hands on HBO - the thesis likely being to push for a sale or spin-off of HBO. Activist names that have been mentioned include Carl Icahn, Keith Meister and now Nelson Peltz. I'm a fan of Time Warner, as it is one of the few media companies, in an industry that's ripe for consolidation, that isn't controlled.

An activist could push for change and get it at Time Warner, whereas the likes of Viacom (NASDAQ:VIAB) and CBS (NYSE:CBS) are controlled by a majority shareholder - making an activist's job of pushing for change tough. Still, here's why I'm cautious on Time Warner right now.

No floor for Time Warner shares

Note that there's a number of companies that could be interested in buying Time Warner, which should put a floor under Time Warner's stock, but it hasn't.

21st Century Fox (NASDAQ:FOX) offered to buy Time Warner in 2014 for $85 a share - Time Warner trades at a near 20% discount to that offer today. Then there's speculation that Amazon (NASDAQ:AMZN) or Apple (NASDAQ:AAPL) might be willing to make a run at Time Warner to get their hands on HBO's streaming service.

Time Warner closed out 2015 at ~$65 a share, a near 25% fall from a year earlier. Despite all the hype, there's little signs of a floor for Time Warner.

Time Warner wants to make HBO the "new" Netflix

Remember when Netflix (NASDAQ:NFLX) wanted to become the next HBO? The tables have turned since that time, and now, rumors persist that HBO may want to become the next Netflix.

With $5.6 million in revenues and 95 million subscribers last year, HBO remains one of Time Warner's most valuable assets. But some investors have suggested separating the premium cable and satellite TV network from Time Warner might make HBO more valuable.

On paper, separating HBO from Time Warner sounds farfetched. But if Time Warner wants to shake things up and make a bold move, a separation is certainly possible. Shareholders, however, should not bank on this. Time Warner is adamant that it won't spin off or sell HBO, instead, it would rather sell the entire company - that's at least the mindset of the current CEO Jeff Bewkes.

No change in thinking anytime soon

It looks like CEO Bewkes will be in the driver's seat for some time, where Time Warner appears satisfied with current CEO Jeff Bewkes and recently extended the term of his employment agreement another three years through 2020.

Bewkes became Time Warner's CEO on Jan. 1, 2008. He has helped Time Warner deliver a total shareholder return of ~160% since that time, but the past few years have been difficult for the company and its shareholders. This comes as the entire media industry is under pressure. Consolidation is the likely outcome, but after Time Warner rebuffed Fox's $85 offer, it's clear that Bewkes is working a different angle - one that I'm not sure pays off for shareholders any time soon. Bewkes may well have a long-term plan in place, but shareholders appear to be left in the dark about it.

In the end

Time Warner is still a media and entertainment giant, but the company needs to evolve if it hopes to bolster its profits. The company is adamantly backing the conventional cable model instead of adapting. Large moves, like separating out HBO, would be a positive, but likely isn't a long-term fix. Best case, this company gets taken private or merges with another industry player (in all likelihood Fox) but Time Warner and Bewkes likely doesn't get serious about selling the company until shares are trading closer to $60.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.