Time Warner Execs Expected to Continue Making Their Case for Independence

An investor day scheduled Wednesday comes three months after an acquisition offer from Rupert Murdoch was rebuffed

Time Warner chairman and CEO Jeffrey Bewkes and his team will take their message to the Street on Wednesday. Wall Street, that is.

The executives are set to outline the entertainment conglomerate's outlook at an investor meeting in New York, where they will no doubt justify a decision three months ago to rebuff an $80 billion takeover offer from Rupert Murdoch's 21st Century Fox.

Since the offer, which amounted to $85 a share, Time Warner stock has been trending lower. On Monday, it closed down 2 percent to $70.64. While the stock is up 10.4 percent in the past 12 months and it has narrowly outperformed the S&P 500, up 10.1 percent in the same time frame, it has underperformed compared with a few competitors. Disney is up 28 percent, for example.

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Nevertheless, observers expect the company to highlight why an independent Time Warner has a considerable upside. Among the likely topics is how the company will spend savings from recent job cuts. Expected at the meeting along with Bewkes are Turner Broadcasting System CEO John Martin, HBO CEO Richard Plepler, Warner Bros. CEO Kevin Tsujihara and Time Warner CFO Howard Averill.

"We anticipate the focus to be on sustained, multi-year opportunities for the company's HBO, Warner Bros. and Turner assets, with less focus on short-term trends," said Guggenheim Securities analyst Michael Morris.

He has maintained his "buy" rating and $88 price target on the stock. "Time Warner's unique content assets and shareholder-friendly ownership structure will continue to command an above-group-average multiple beyond 2016," he predicted.

"Having elected not to engage with Fox, Time Warner now has the chance to prove it is worth more on its own than anything Fox was in a position to offer," Sanford C. Bernstein analyst Todd Juenger said in a recent report. "The most obvious opportunity Time Warner has to argue for earnings upside is at HBO."

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He told his clients that if the company’s restructuring and other initiatives don’t pan out as expected, stockholders can still profit.

"We think the best news for investors is they will ultimately benefit either way," he said. "If the growth plan is well received and executed, the stock should outperform. If it's not, then ultimately we believe Fox or someone else will come back (to a much more receptive Time Warner board) and investors will ultimately be rewarded as well."

MKM Partners analyst Eric Handler wrote in a Monday report that investors should "look for a multi-year blueprint but no major surprises," and he reiterated his $90 price target and “buy” rating.

"Warner Bros. catalysts should emphasize what should be a strong multi-year content cycle," Handler wrote. "Franchise momentum is now emerging in television production with multiple DC Comics programs on multiple broadcast networks. Feature film production should proliferate in 2016 with two DC films (including Batman v Superman) and spinoff movies from the Harry Potter wizard world and Lego franchises."

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As far as the Turner TV networks unit goes, Handler expects management to reiterate a forecast for double-digit U.S. affiliate fee growth through 2018, more details on the Turner 2020 growth initiative and "additional details on the TNT and TBS programming initiatives."

HBO highlights are likely to include such issues as the conversion of non-revenue generating subscribers and international expansion, according to the analyst.

Juenger called his recent report "Heads You Win, Tails You Also Win," and he discussed three potential ideas to drive performance at HBO: pay TV "lite" packages targeting people less willing to pay full price for premium TV; a direct-to-consumer broadband offering; and using the threat of such a service "to drive higher wholesale pricing."

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