Time Warner Is the Future of Big Media
By Richard Saintvilus - 05/04/12 - 8:46 AM EDTTheStreet) -- For years, media giant Time Warner
An Entertaining QuarterFor the period ending in March, Time Warner broadcast a net income of $583 million. While that exceeded analyst expectations, it also represented a decline of 11% from $653 million during the same period a year ago. Excluding items, first-quarter profit arrived at 67 cents per share -- topping analyst estimates of 64 cents as well as last year's figure of 58 cents. Revenue increased 4% to $7 billion, ahead of expectations of $6.82 billion. Contributing to the increase in revenue were strong advertising sales, but the company attributed the performance to "better timing" of the NCAA's March Madness tournament. The company reported an increase of 6% in adjusted operating income to reach $1.35 billion, while operating margin expanded 30 basis points to 19.4%. In terms of outlook, the company reaffirmed its double-digit growth expectation for the balance of 2012.
Moving ForwardAs disappointing as the decline was in net income, it did however top analysts' estimates. In assessing the overall report, it is clear that the business is moving in the right direction, for which the company's chairman and chief executive Jeff Bewkes said offered the following:
We're off to a great start to the year, and we're benefiting from strong momentum for our content across our businesses. In the quarter, we saw impressive viewership gains at many of Turner's networks, including TBS ranking as the No. 1 network on cable among its key demographics. Reflecting our confidence in our competitive position and growth prospects, we've repurchased almost $900 million of our stock so far this year.
Bottom LineBen Graham, one of the world's most successful investors, operated with an important precept. He would consider any company whose price-to-earnings ratio (over a three-year average) multiplied by its price-to-book was higher than 22.5. I have found that Time Warner indeed fits the criteria. It is one thing for investors to look at a stock and see value, it is also very rewarding for when management affirms that value by repurchasing shares - which Time Warner did to the extent of 24 million shares, aggregating $889 million. The company's board of directors had authorized a share buyback plan of $4 billion in January 2012. Time Warner continues to be one of those names on Wall Street that flies under the radar -- pretty remarkable when you consider how successful of a broadcast media company it has been. Looking at the company's stock and its P/E of 13 relative to its peers, there are two things that come to mind -- either Comcast, Disney and News Corp. are grossly expensive at P/Es of 20, 16 and 16 respectively or Time Warner is significantly undervalued. At least management agrees with me.
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