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This Media Conglomerate Is Set to Outperform

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Time Warner (NYSE: TWX  ) has made several wise decisions in recent years, not the least of which was CEO Jeff Bewkes' reversal of his predecessor's moves. The result is a media conglomerate pushing through its 52-week high and still trading at a reasonable valuation. While shedding less favorable assets, the company is focusing on its cash-generating, strong businesses, such as premium cable network HBO and Turner Broadcasting Station. Should investors be taking a closer look at Time Warner going forward or has the opportunity already passed?

The take
For the first quarter, Time Warner brought in $6.9 billion in revenue and $750 million in net income. The top line fell short of analysts' $7.16 billion estimate, but the bottom line posted a confident beat, with the company earning $0.82 per share vs. estimates of $0.75. Regardless of estimates, the company grew substantially over the prior year's quarter, when it earned $583 million ($0.59) in net income.

Investors seemed underwhelmed, and the stock ticked down around half a point in the moments following the announcement.

Segment by segment, television at Warner, HBO, and TBS continue to perform well. TV revenues grew 4%, while operating income was up 11%. Advertising revenue was slightly down due to the poor performance of CNN and winding down television stations in Turkey.

Time Warner's publishing unit, Time Inc., continued to lag on results, but not for long. As mentioned in a previous article, the company is set to spin off the publishing unit in the coming months, giving investors a pure play on video entertainment.

Looking forward, management expects adjusted earnings to grow in the low double digits for the full year.

Investor takeaway
Time Warner is a very well-managed company. Bewkes spun off Time Warner Cable and AOL over the past couple of years, and all three companies have prospered because of it. The upcoming publishing spinoff should relieve investors as the segment has, for years now, dragged down otherwise attractive growth and, simply put, is in a dying business.

Look to international expansion in coming years for more networks and content production. The company has reportedly made a $1 billion bid for Turkish TV Network ATV, as it finds the U.S. market to have neared saturation (not to mention the current high price of acquiring domestic businesses).

Time Warner isn't a bargain by any means, but it is a well-run company set for continued growth.

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9/23/2016 4:04 PM
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Time Warner CAPS Rating: ****