Time Warner's Upside Gets A Good Review
Time Warner (TWX) is our favorite domestic media stock as a result of its strong competitive position in content creation as well as its cheap valuation; it currently is trading at just under 12 times our 2012 earnings per share estimate. And Time Warner is the least cyclical of our entertainment companies with only 22% of sales from advertising, so the stock is well suited for investors concerned about the macroeconomic environment or looking for dividends (current yield 2.8%).
Time Warner's collection of assets, including crown jewel HBO, is outstanding and we trust the management team to wisely manage the distribution of content and to continue returning capital to shareholders via buybacks and dividends. Time Warner is well positioned to take advantage of many of the emerging opportunities we see in the television industry and fits well into our overall media sector thesis that quality video content is king.
Still in a Position of Strength
We are bullish on content owners and the pay-TV ecosystem in general. Each of the vertically integrated television video content firms we cover--those that create and own video content as well as highly valuable cable and broadcast network platforms--benefits from high barriers to entry. The broadcast industry is consolidated in four networks (CBS, Fox, NBC, and ABC). There are hundreds of individual cable channels. We estimate that more than 85% of cable network sales (affiliate fees and advertising dollars) are owned by seven companies: Disney (DIS), News Corp. (NWS), Comcast/NBC Universal (CMCSK), Time Warner, Viacom (VIAB), Discovery (DISCA), and Scripps (SNI). READ FULL ARTICLE HERE