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Citi’s Jason B. Bazinet believes Time Warner Inc 's stock valuation warrants to trade at a higher P/E multiple due to various factors.
Bazinet maintains a Buy rating on the company, while raising the price target from $83 to $85.
Positive Trends
The analyst mentioned that Time Warner was likely to benefit from two trends. Firstly, affiliate fees were expected to accelerate with the company’s cable networks entering a new renewal cycle.
Secondly, Bazinet expects the stock to see upside, “since the new firm (made up of only Turner, HBO and Warner Bros.) will have a higher growth rate.”
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Higher Multiple Warranted
Bazinet also pointed out that Time Warner’s stock deserves to trade at a higher multiple, given that the company’s EPS was expected to grow at a faster pace than its other media peers and the S&P through 2016.
In addition, the analyst noted that “Time Warner's revenues are less exposed to the rising risk posed by SVOD providers.”
According to the Citi report, “The company's growth trajectory is more reliant on comparatively more volatile income from Warner Brothers than we previously had forecasted.”
Estimate Revised
The EPS estimate for 2017 has been raised from $5.91 to $6.01 to reflect marginally higher advertising growth at Turner.
The revised estimate also reflects a decline in FX headwinds at both Turner and Warner Bros., in line with the expectations, as well as an improvement in Warner Bros.’ performance due to "Batman V Superman."
Latest Ratings for TWX
| Date | Firm | Action | From | To |
|---|---|---|---|---|
| Apr 2016 | Citigroup | Maintains | Buy | |
| Apr 2016 | JP Morgan | Maintains | Overweight | |
| Apr 2016 | RBC Capital | Initiates Coverage on | Outperform |
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