On Jan 3, 2015, Zacks Investment Research upgraded Time Warner Inc. (TWX) to a Zacks Rank #1 (Strong Buy). The company’s performance was outstanding last year — its shares surged roughly 32%.
Why the Upgrade?
The strength witnessed across Turner, Home Box Office (“HBO”) and Warner Bros. helped Time Warner to deliver better-than-expected third-quarter fiscal 2014 bottom-line results. A lower number of shares outstanding also provided cushion to the bottom line.
Time Warner, which competes with Twenty-First Century Fox, Inc. (FOXA), posted impressive third-quarter results, wherein earnings of $1.22 per share surpassed the Zacks Consensus Estimate of 94 cents, reflecting strength across Turner, Home Box Office and Warner Bros.
Additionally, the company has surpassed the Zacks Consensus Estimate in the last 10 quarters with an average beat of 9.8%, including a positive surprise of 29.8% in the recently concluded quarter.
Further, the company’s total revenue of $6,243 million jumped 3% year over year and came ahead of the Zacks Consensus Estimate of $6,129 million.
We also remain optimistic about this diversified media conglomerate as it has been actively managing its cash flows, returning much of its free cash to shareholders via dividend and share repurchases.
Driven by healthy results and strong growth outlook, management expects high-teens growth in adjusted earnings per share for fiscal 2014 against low-teens increase forecast earlier, that seems quite achievable.
We believe that the company’s initiatives such as foray into new markets, divestment activities and digital endeavors would help it to continue with its upbeat performance in the coming quarters. Time Warner’s investments in content and technology in the recent years also bode well for the company.
Moving on, strong results and an upbeat guidance led to an improvement in the Zacks Consensus Estimate. The Zacks Consensus Estimate has risen 4% to $4.17 for fiscal 2014 and 2.2% to $4.73 for fiscal 2015, over the past 60 days.
Other Stocks That Warrant a Look
Other favorably ranked stocks include News Corp. (NWSA) and Salem Communications Corp. (SALM), both carrying a Zacks Rank #2 (Buy).
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