AOL Time Warner's


stock has hit rock bottom. Really. This time we mean it.

Such is the message from Wall Street's community of sell-side analysts, as delivered Wednesday morning by Merrill Lynch's Jessica Reif Cohen. Reiterating her buy rating on the media conglomerate, Cohen says AOL Time Warner shares, of which have fallen more than 60% since the beginning of the year, offer "compelling value" to investors.

Unfortunately for AOL Time Warner believers, analysts have been saying roughly the same thing ever since the shares began to decline more than a year ago. So once again, investors are compelled to decide whether the crumpling price results from a transient image problem, or a fundamental change in how Wall Street values media companies.

Getting little help from Cohen's report, AOL Time Warner's shares rose 9 cents Wednesday to trade at $12.61.

McClellan Oscillator

AOL Time Warner's current price of about $12.50 is a fair value for the former Time Warner, Cohen suggests, meaning that buyers acquiring the stock now would basically get the America Online division for free.

Coiled Spring
AOL stock: always a bargain

Sounds promising, except that fund manager and respected media investor Mario Gabelli was saying the same thing in late February, when AOL Time Warner was about $23 a share. First Albany analyst Youssef Squali made the same "AOL for free" pitch in early April, followed by UBS Warburg analyst Christopher Dixon in late April, when AOL Time Warner was above $19. "Right now you're basically getting AOL for free," Dixon told

Nightly Business Report


Merrill's Cohen saw three major reasons Wednesday for AOL Time Warner's incredible shrinking share price and valuation. (Measured by enterprise value -- market cap minus cash plus debt -- as a multiple of earnings before interest, taxes, depreciation and amortization, AOL Time Warner has gone from roughly 20x 2002 EBITDA at the beginning of the year to 10x EBITDA, Cohen says.)

The three biggest weights on the stock, she says, are concerns about the AOL segment's viability, collateral damage in the cable industry from

Adelphia Communications'

accounting problems and bankruptcy, and


-inspired worries about the validity of EBITDA-based valuations.


The AOL problems are overblown, says Cohen, who says declines in the online service's average revenue per user are an expected temporary result of subscriber growth. The worries stemming from Adelphia and WorldCom, she says, come from people "fishing" for accounting problems.

Cohen, whose firm has done recent investment banking for AOL Time Warner, has a price target of $25 on the stock.

Contrary to the argument that AOL Time Warner's stock is buffeted by these and other short-lived problems -- such as continuing uncertainty over the fate of AOL Time Warner's Time Warner Entertainment partnership with


(T) - Get Report

, another possibility remains: that the company's sunken market value reflects permanent, or at least difficult to dislodge, changes in Wall Street's perception of media companies.

Music industry shipments are declining, for example; no turnaround is in sight and the Internet poses as much of a threat to future profits as it does an opportunity. With EBITDA a suspect concept in valuations of capital-expenditure-intensive businesses, investors may reassess the importance of this traditional yardstick. Magazine publishing isn't a barnburning growth business of late. And online, the ultimate value of advertising has yet to be set, while America Online's role in a high-speed universe is still unclear.