Time Warner (TWX) Completes Time Inc. (TIME) Spinoff

Updated from 10:15 a.m. EST to update reasoning behind lower share prices. 

NEW YORK (TheStreet) -- Time Warner (TWX) stock is trading lower Monday after completing its spinoff of Time Inc. (TIME), a unit which will focus solely on its magazines including Sports Illustrated and People. Time Inc. begins trading Monday on the New York Stock Exchange. 

By midmorning, shares of Time Warner were 3.2% lower to $68.82, a product of the absence of Time Inc.'s value included in the stock price. As part of the spinoff, Time Warner distributed outstanding shares of Time Inc. common stock to its shareholders at a distribution ratio of one Time Inc. share for every eight shares of Time Warner common stock.

"The spin-off of Time Inc. completes the process we began several years ago to position Time Warner as the world's leading video content company," Time Warner CEO Jeff Bewkes said in a statement. "The spin-off gives Time Warner even more focus as we continue to deliver on this strategy."

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

"We rate TIME WARNER INC (TWX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

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

  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • TIME WARNER INC reported significant earnings per share improvement 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 $3.77 versus $3.00 in the prior year. This year, the market expects an improvement in earnings ($4.00 versus $3.77).
  • 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 71.3% when compared to the same quarter one year prior, rising from $754.00 million to $1,292.00 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 14.9%. Since the same quarter one year prior, revenues slightly increased by 8.7%. 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 0.68, 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 1.32, which illustrates the ability to avoid short-term cash problems.
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