One Reason Why Time Warner (TWX) Stock Dropped Today

Time Warner (TWX) shares closed Monday's trading session down as cord cutting is 'intensifying at breakneck speed.'
By U-Jin Lee ,

NEW YORK (TheStreet) -- Time Warner Inc. (TWX) shares closed Monday's session down by 0.54% to $68.49 on heavy trading volume as cord cutting is "intensifying at breakneck speed," according to CNBC.com.

Specifically, BTIG Analyst Rich Greefield said that media stocks are in for a rude awakening as "there is a seismic change in consumer behavior that is affecting the entire media sector." 

He added that overall, consumers are losing more and more interest in watching live linear television.

According to a survey conducted by Magid Advisors, a unit of Frank N. Magid Associates, which is a research-based strategic consulting firm, over the next 12 months, 3.7% of pay TV subscribers between ages 18 to 64 said that they were "extremely likely" to cancel their pay TV service. This is a 95% increase from 2011 results, CNBC.com said. 

In addition, last week, Time Warner slashed its fiscal 2016 earnings outlook. It now expects 2016 adjusted earnings to be around $5.25 a share, under analysts' expectations of $5.60 a share.

Following this announcement, media stocks immediately fell on cord-cutting concerns, Bloomberg noted.

Separately, TheStreet Ratings team rates TIME WARNER INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate TIME WARNER INC (TWX) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, increase in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • TIME WARNER INC has improved earnings per share by 13.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TIME WARNER INC increased its bottom line by earning $4.39 versus $3.56 in the prior year. This year, the market expects an improvement in earnings ($4.66 versus $4.39).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Media industry. The net income increased by 7.0% when compared to the same quarter one year prior, going from $967.00 million to $1,035.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 6.5%. Since the same quarter one year prior, revenues slightly increased by 5.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.97, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.08, which illustrates the ability to avoid short-term cash problems.
  • You can view the full analysis from the report here: TWX
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