Time Warner Inc. (TWX) has not been a worthwhile investment since the company merged with AOL Inc. The company’s earners were dragged down by the massive losses at its AOL division. Time Warner has been able to free itself from the AOL albatross by spinning off the company into its own entity. Now that Time Warner Inc. is free from AOL, the company is worth looking at as a potential investment again.
Time Warner has a hand in every area of the media market. The company owns a number of different media properties including New Line Cinema, Warner Brothers, Turner Broadcasting System, HBO, Sports Illustrated, Time Inc, CNN, and Cartoon Network. They compete in every area of the media market including television, movies, DVD’s, blog’s, gaming, entertainment, and print journalism.
The company is in good financial shape with $4 billion dollars in cash. Time Warner has generates nearly $3 billion dollars in cash flow this year. Time has been making moves over the past year to reduce its $16 billion dollar debt burden. The company has been slowly redeeming its outstanding debt.
Time had negative earnings growth of -4.5% over the past five years. Much of those losses can be blamed on AOL. The failure of the merger with the former Internet king forced Time Warner to take massive writedowns and losses in the billions. The company’s margins are still solid with Time Warner boasting a 20% operating margin and a 9% profit margin. The company’s return on equity and return on assets should improve now that the company’s worst asset has been sold. Both numbers are low at just 7% and 5% respectively.
Time Warner should see growth in the advertising market over the next few years as demand returns to the private sector. Time is forecasting double digit earnings growth of 14%. The stock looks like a decent value right now as the company trades near its book value. Shares are currently trading at 13 times this year’s earnings and 11 times next year’s earnings. This is reasonable based on Time Warner’s earning potential.
Time Warner is one of the cheapest companies in the media industry based on its earnings growth The stock has a nice yield as well. Time Warner is yielding 2.8% which is just slightly higher than its historical yield.
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