Is Time Warner a Hot Stock?

With shares of Time Warner (NYSE:TWX) trading around $83, is TWX an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Time Warner is a media and entertainment company. The company operates in three reporting segments: Networks, Film, and TV Entertainment and Publishing. Networks consist of television networks, premium pay, basic-tier television services, and digital media properties. Film and TV Entertainment consists of feature film, television, home video, and video game production and distribution, while Publishing consists of magazine publishing. Through its segments, Time Warner is able to move audiences around the world. With such a large and growing audience, look for Time Warner to continue to drive profits through its media and entertainment.

21st Century Fox (NASDAQ:FOXA), a film and TV company controlled by Rupert Murdoch, offered to buy Time Warner last month for about $80 billion, a deal that would combine two of the largest players in the cable network business and possibly unleash a wave of consolidation among content producers. Time Warner said in a statement that 21st Century offered about $84 a share, a combination of 1.531 non-voting common stock shares and $32.42 in cash. In a video, Time Warner Chair and CEO Jeff Bewkes said the board determined that the unsolicited bid “was not in the best interests of Time Warner.” 21st Century Fox also confirmed its bid.

Shares of Time Warner soared 17 percent to $83.13 in morning trading Wednesday following an initial report by The New York Times that Murdoch offered the bid for the New York-based company that owns HBO, Turner Broadcasting System and Warner Bros. “The Time Warner Board of Directors declined to pursue our proposal,” said 21st Century in a statement. We are not currently in any discussions with Time Warner.” Rarely do deals of this magnitude fail after the first offer, and the two companies will continue to negotiate given Murdoch’s heavy interest in adding more film and TV assets. But knowing Time Warner has at least one suitor, other network operators could be interested in jumping in to buy all or parts of the media giant. With content production cost surging, TV networks are looking for acquisition deals to boost their bargaining leverage against cable and satellite companies and sports leagues that are seeking higher payments.