While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Time Warner Inc (NYSE: TWX ) gained slightly this morning after Jefferies initiated coverage on the media giant with a buy rating.
So what: Along with the bullish call, analyst John Janedis planted a price target of $80 on the stock, representing about 16% worth of upside to Wednesday's close. So while momentum traders might be turned off by Time Warner's price strength over the past year, Janedis' call could reflect a sense on Wall Street that its long-term growth prospects still aren't fully baked into the valuation.
Now what: Jefferies expects Time Warner's earnings to grow at a compounded rate of 12% over the next two years. "With the publishing spin finally complete, we view Time Warner as a content machine without the issues associated with owning a TV network,"Janedis said. "Moreover, having effectively de-risked the affiliate fee story by providing guidance through '18, and with a secular tailwind of demand for Warner Bros. TV studio content, a compelling return of capital/leverage outlook, and improving ratings leading to peer-like ad growth, should allow the shares to outperform." When you couple that upbeat outlook with Time Warner's still-reasonable forward P/E of 15, it's easy to understand Jefferies' bullishness.
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