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November 05, 2008
Good Quarter Supports Time Warner Shares
Time Warner reported solid 3Q08 results given the economic environment. The stock is reacting positively against a weak market to start the day. The good news is that (1) Turner Networks continue to provide upper single digit growth, (2) Time Warner Cable is showing expected resiliency given the utility like nature of its business, and (3) the Time Warner Cable split appears to be set for early 2009 despite credit market conditions.
Once the split is complete, TWX will be a content focused company with the largest portion of revenue and operating income coming form Turner Networks and Filmed Entertainment. Both of these businesses are performing well at the moment which should give investors confidence that the new TWX will be positioned to hang tough in 2009 against a weak economy and poor advertising trends.
The lagging business units at the new TWX are AOL and Publishing. AOL had another steep revenue decline and continues to experience weak advertising trends. However, cost controls were excellent in 3Q indicating that the business is being managed effectively thus reducing the risk that it implodes and drags down the much larger Turner Networks and Warner Brothers studio.
Publishing is really struggling and faces serious secular and cyclical headwinds. Fortunately, Publishing is a smaller division and even if it underperforms in 2009 it should not materially impact overall results....
....Time Warner Cable had another solid quarter of upper single digit growth. Growth will slow in 2009 but should remain in the mid-single digits. IT sounds like the split from TWX is on which is a positive for TWX as a $9 billion cash dividend will come TWX's way dramatically improving the balance sheet. Even if the split falls apart, the steadiness of TWC is helpful given the uncertain economic outlook in 2009.
TWX shares can continue to claw back recent losses. I'll be surprised if the stock can get back to $14-15 but I still think it can outperform the market and move higher as long as the market is stable. My confidence in the 2009 outlook is improved which would lead me to average down if the shares pull back in a market correction.
Posted by Steve Birenberg at November 5, 2008 08:43 AM in TWX