Is Time Warner Still a Big Winner?

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With shares of Time Warner Inc. (NYSE:TWX) trading at around $56.36, 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:

C = Catalyst for the Stock’s Movement

Time Warner might have a few different revenue streams, but cable is still the key. Cable is responsible for approximately 70 percent of cash flow. One of the current challenges for Time Warner is a weak consumer that is no longer willing to pay for extra channels. As a result, Time Warner might drop several networks, including E! and Lifetime. This will only be bad news for some people, especially those who enjoy watching the Kardashians in various forms. This pertains to their location, not their current BMIs. The big network winner, TNT, will remain an option on Time Warner Cable for a long time to come. In 2012, five of seven of the most watched cable shows in the 18-49 demographic were on TNT. These shows include The Closer, Rizzoli & Isles, Major Crimes, Perception, and Dallas. The other two most-watched cable shows were The Walking Dead (AMC) and Pawn Stars (History). It might disappoint some readers in this demographic to know that the final season of Jersey Shore (MTV) came in 10th. It’s time to say goobye to GTL.

There might have been a setback in revenue in 2012, but it was miniscule. Time Warner is currently focused on cutting costs, and on way it’s doing so by divesting Time Inc. Magazines, which includes Sports Illustrated, People, Time, InStyle, Real Simple, and Fortune. With more advertisers choosing online opposed to print, there was little sense in fighting an uphill battle.

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The chart below compares fundamentals for Time Warner, News Corp. (NASDAQ:NWS), and The Walt Disney Company (NYSE:DIS). These three companies differ in size. Time Warner has a market cap of $52.39 billion, News Corp. has a market cap of $70.59 billion, and Disney has a market cap of $102.80 billion.

TWX

NWS

DIS

Trailing   P/E

18.14

18.20

18.37

Operating   Margin

22.24%

16.54%

20.74%

ROE

10.08%

14.60%

14.71%

Dividend   Yield

2.00%

0.60%

1.30%

Operating   Cash Flow

$3.44 Billion

$4.16 Billion

$7.38 Billion

Short   Position

2.20%

1.00%

2.00%

Beta

1.22

1.20

1.12

 

Let’s take a look at some more important numbers…

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