Analysts Chime in on Possible Time Warner Magazines Sale

Analysts overnight reacted to late Wednesday reports that Time Warner was looking at selling a big part of its Time Inc. magazine unit.

our editor recommends

Time Warner Might Sell Most Time Inc. Magazines

Time Warner Reports Higher Fourth-Quarter Earnings, Raises Dividend

Time Warner Cable Posts Mixed Fourth-Quarter Results, Outlook

The entertainment conglomerate could retain the Time, Fortune and Sports Illustrated brands, but divest the rest of the division, with women's and lifestyle magazine publisher Meredith mentioned as a possible buyer.

STORY: Time Warner Might Sell Most Time Inc. Magazines

Time Warner's stock hit its latest 52-week high of $53.65 on Wednesday before ending up less than 1 percent at $52.85. The company didn't comment on the possible sale, which Wall Street observers have repeatedly mentioned as a possibility over the years.

UBS analyst John Janedis estimated the asset value of the magazine unit, excluding the three big-name titles, at $2.4 billion-$2.9 billion, assuming that Time, Fortune and Sports Illustrated account for about 10 percent of Time Inc.'s operating profit.

Meanwhile, Lazard Capital Markets analyst Barton Crockett estimated that the whole publishing unit adds around $4.6 billion to TW's enterprise value. A sale of the whole magazine unit would be worth as much as $5 per share to TW, he said.

Several analysts predicted that a partial magazine-unit sale would only happen if Time Warner management, led by CEO Jeff Bewkes, gets a good price offer.

STORY: Time Warner Reports Higher Fourth-Quarter Earnings, Raises Dividend

"Time Warner, we believe, is somewhat open to divesting its magazines, following in the footsteps of News Corp. [which is in the process of separating its entertainment and publishing businesses], at the right price," Crockett wrote in a Thursday report.

"We think a divestiture would be a modest positive for TW, as it would exit a business under secular pressure, that has been a modest headwind for earnings growth, [investor] sentiment and thus the [stock] multiple," he argued. The analyst maintained his "buy" rating and $64 price target on TW's stock.

Janedis in the fall upgraded his rating on TW's stock to "buy," predicting that the earnings for the conglomerate would be "more stable and predictable going forward."

On Thursday, he reiterated his "buy" rating and $60 price target. "Publishing for Sale? Buy Thesis Playing Out," he titled his report.

STORY: Time Warner Cable Posts Mixed Fourth-Quarter Results, Outlook

"When we upgraded TW shares in early September, part of our thesis was management would look to review strategic alternatives for the publishing business, which we believed would unlock value and improve the growth profile for Time Warner," Janedis said.

He added: "A publishing asset sale would also improve the [operating profit] growth profile of the company ... and simplifies the TW story."

Email: Georg.Szalai@thr.com
Twitter: @georgszalai