Analysts Changing Views on Time Warner

When Time Warner Inc. (NYSE: TWX) CEO Jeffrey Bewkes and his board rejected an $85 per share buyout offer from Rupert Murdock in July of 2014, Bewkes and the board said that they were confident that their own plan “will create significantly more value” for both the company and its stockholders. That turns out to have been dead wrong.

For the full year 2015, revenue was $28.1 billion, up from $27.4 billion the year before. It missed the consensus analyst revenue forecast. Net income was flat at $3.8 billion. Investors were particularly worried about the effect of cord cutting on current and future results. The company did repurchase 45 million shares for $3.6 billion, an activity frowned upon by many investors as a waste of capital.

Analysts at Bank of America Merrill Lynch offered some insight into their Neutral rating on the stock and their $79 price target:

Although TWX is one of the few M&E stocks positioned for accelerating growth in 2016, we maintain our Neutral rating on shares given the well telegraphed / catalyst light nature of the co.’s fundamental outlook. We agree with management’s [subscription video on demand] SVOD holdback strategy and elevated focus on improving consumer experiences on all platforms, however significant time and investment will be needed for top-line benefit to play out…. Although TWX offers visibility on a mid-high teens EPS CAGR, low 17% adv. exposure, a strong balance sheet with healthy capital returns and upside potential across divisions, given ongoing FX headwinds, ratings headwinds and commendable investment initiatives, we believe share outperformance will likely be restrained over the near to medium term.

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Other analysts that weighed in were also cautious:

• Barrington Research cut its price target from $81 to $78 and rates the stock at Outperform.
• CLSA chopped its price target from $81 to $69 and also rates the stock as Outperform.
• JPMorgan cut its price target from $91 to $79.
• MKM Partners has a Buy rating on the stock but lowered its price target from $84 to $78.
• Pacific Crest cut its price target from $78 to $71 with an Overweight rating.
• Goldman Sachs maintained its Buy rating but lowered the price target to $80.
• S&P CAP IQ has a Buy rating and a $72 price target.

Time Warner stock closed Friday at $62.26, in a 52-week range of $55.53 to $91.34. The low was posted on Wednesday after the company reported earnings. The consensus price target on the stock is $81.48, but the latest changes may not yet be included.