Time Warner has realized success lately with its movie studio, Warner Bros., whose fourth installment of the Mad Max series, Mad Max: Fury Road, grossed $118 million domestically as of June 1. Box office numbers for Mad Max surpassed the take of Disney's (DIS) Tomorrowland, which was released a week later and has grossed $65 million domestically as of June. (Tomorrowland cost $190 million to produce, according to Box Office Mojo.)
Credit Suisse initiated coverage of New York-based Time Warner with a 12-month price target of $110. The share price of Time Warner was rising 1.4% on Wednesday, to $85.86, extending its advance for the year thus far to 0.5% compared with a 2.8% gain this year for the S&P 500.
The value of HBO and Warner Bros. will increase over time, and with it, the price of the company's shares, Sheikh said.
Among the company's most compelling properties is HBO Now, the standalone service that debuted in April. At the time, HBO CEO Richard Plepler said the offering was designed to attract viewers in the roughly 10 million U.S. homes with an Internet connection but without pay TV subscriptions as well as those in 70 million homes with pay TV but lacking HBO. A subscription to the streaming service costs $14.99 a month.
At Warner Bros., the studio is in production of Batman v Superman: Dawn of Justice starring Ben Affleck and Henry Cavill, scheduled for a March 2016 release. Sheikh says Credit Suisse views Time Warner as a more affordable investment compared to Disney and 21th Century Fox (FOXA).
In its most recent earnings report, Time Warner reported earnings of $1.59 per share, down 6.5% from the same quarter the previous year. Revenue for the company had risen 3.5% for the quarter but still underperformed the industry average of 3.8%. Credit Suisse estimates Time Warner's revenue will increase 3% in 2015 while profit climbs 10%.
TheStreet Ratings team rates Time Warner as a buy with a ratings score of A. TheStreet Ratings Team has this to say about its 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 revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, solid stock price performance and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income."
You can view the full analysis from the report here: TWX Ratings Report