Time is on Time Warner's (TWX) side.
That's what some shareholders of the media and entertainment conglomerate believe in the face of Time Warner's stalled stock price.
Over the past year, investor concern over such issues as cable TV industry competition, America Online's fate in a world of high-speed Internet connections and an ongoing
Securities and Exchange Commission
investigation have weighed on Time Warner's stock.
With Time Warner acknowledging last week that it's exploring a bid for
cable systems with
, investors have found another reason to steer clear of the stock, as they wait to find out how much money Time Warner will spend on Adelphia subscribers.
But Time Warner's fans insist that the fundamentals are improving at the multimedia conglomerate, and that it's mostly a matter of time for the company's uncertainties to clear up.
"Looking out two, three years, there's no way this is going to stay as cheap as it is, provided there are no major disruptions and it continues to grow as it does now," says Tom Kerr, portfolio manager with Reed, Conner & Birdwell, which owns 3.3 million Time Warner shares.
Sinking from January's high of $19.30, Time Warner's shares have bounced along in a tight trading range for most of the year. Shares closed at $16.60 Friday, up 46 cents. While the stock is way up from recent lows -- it bounced off of $10 in February 2003 -- it's still well below the $50-plus levels it traded at following the January 2001 completion of the America Online-Time Warner merger.
Kerr, for one, is optimistic about the outcomes of several of the issues weighing on the stock. It's a good sign, he says, that the company is taking this long to put closure on the SEC investigation stemming from onetime revenue recognition policies at AOL. (Time Warner said in late 2002 that it planned to restate prior results at AOL, and the company disclosed in March 2003 -- 18 months ago -- that the SEC took issue with how Time Warner accounted for a major deal with Bertelsmann.)
While others might view the delay as an excuse to worry that Time Warner and the SEC are too far apart to come to terms, Kerr has a different view. It appears, he says, "they're not going to do something they don't feel comfortable with. ... We think that they are highly confident that what they're doing is in the best interests of shareholders."
As for the purchase of Adelphia, Kerr doesn't believe Time Warner will overpay, similar to how the company recently pulled out of the bidding for
when the price got too steep. There's great opportunity in a purchase, he says, since it gives Time Warner the opportunity to improve a poorly managed, low-margin operation. "It's almost like Comcast buying
" Broadband, he says.
On the basis of discounted cash flow valuations on the current operations of each of Time Warner's segments, Kerr says, the company should be valued in the low $20s. If everything goes right for AOL and cable next year, that appropriate valuation should be in the high $20s, he says.
Fear of a major cable acquisition is one of the two major issues hanging over Time Warner, says Richard Greenfield, an analyst at Fulcrum Global Partners.
While Greenfield says it makes sense for Time Warner to add a million or two subscribers to its cable systems while extricating itself from Comcast's minority ownership of Time Warner Cable, he himself is not enthusiastic about a larger-scale cable acquisition himself. "I don't believe in getting dramatically larger in cable, because there are significant competitive concerns that don't have good answers today," Greenfield says.
The other major issue dampening investor enthusiasm for Time Warner, says Greenfield, is the AOL service. "Investors I meet with continue to view AOL as a problem," he says. "They do not believe that AOL will be around in five to 10 years. They believe that as narrowband deteriorates, so does AOL."
That's not going to happen, says Greenfield, who has a buy rating on Time Warner and a $20.50 price target on the stock.
As the narrowband business declines, he says, AOL is responding with "significant and ongoing cost-cutting." AOL is adding subscribers to its "Bring Your Own Access" content-only service, targeted at users who get high-speed Internet connections via cable or DSL.
And the company's campaign to relaunch its AOL.com Web portal -- "off of everyone's radar screen," he says, but which is going to be a reality within months -- represents another opportunity for growth. (A beta version of a re-engineered AOL.com, targeted at both AOL members and non-subscribers, is available at
"I think they're executing well in most of their businesses," says Mark Greenberg, portfolio manager of the
AIM Leisure fund (formerly the Invesco Leisure fund), a Time Warner shareholder as of June 30.
For example, Warner Bros. Entertainment chiefs Barry Meyer and Alan Horn are doing a "terrific job," says Greenberg, and Time Warner CEO Dick Parsons is "holding the line" on finances.
"I think they are good stewards of investors' money," says Greenberg.