Media stocks earn early kudos

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NEW YORK -- Time Warner, News Corp. and cable companies are among sector players getting some early Wall Street support in the new year.

Barrington Research Associates analyst James Goss this week picked TW as his "best idea" for the entertainment industry in 2008, highlighting the elevation of Jeff Bewkes to CEO -- a factor that many on the Street have described as a possible boon for the conglomerate's shares.

Goss echoed many of his peers, arguing that Bewkes "will be freer to make the more dramatic structural changes some would like to see."

Goss would like to see TW turn into three major units -- content, cable and Internet. "TW would then have the levers to create larger or smaller exposures to cable and Internet as management and the board sees fit," he said in explaining that rationale.

The analyst has a $20 target price on TW shares, which he said "has upside that could be unlocked if structural changes allow a greater focus on individual properties."

Miller Tabak + Co. analyst David Joyce also sees upside for TW. He has a "buy" rating on the stock and a $21 intermediate-term target.

In a recent note, he called the company "a greatly undervalued media conglomerate." It could be "possibly worth $26-$31 per share if we were not facing a possible recession, if AOL had entered the online advertising market earlier and was growing at that level and if cable industry multiples were at some average level" rather than currently low valuations.

The $21 interim target price that Joyce sees attainable over the next six months despite all these challenges would mean a potential 27% upside for the stock. A stock price of $25 could be achievable in 12-24 months, Joyce said.

Meanwhile, Banc of America Securities analyst Jonathan Jacoby has News Corp. as his top pick for 2008. After all, the conglomerate "continues to invest in its growth assets," and the current fiscal year "has the potential to show operating income growth acceleration" from the previous fiscal year.

Joyce also has come out in support of depressed cable stocks early this year. Cable companies are trading at historic lows after a rough 2007, but at a premium to telecom stocks, which a recent Wall Street Journal article suggested may not be deserved.

Similarly, Bear Stearns analyst Spencer Wang reiterated a "positive view on the cable industry." His argument: "Heading into 2008, we view risk-reward as attractive."
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