TW shares surge to 4-year high

Analyst upgrade, cable IPO talk sends price past $21

Shares of Time Warner Inc., which have been on a tear of late, broke the $21 mark Monday and set a multiyear high on an upgrade by Prudential Equity Group, which cited the upcoming spinoff of Time Warner Cable and other catalysts. The report also put a $27 price target on the stock.

TW shares closed up 2% at $21.33 after going as high as $21.39 in intraday trading. Their previous 52-week high was $20.95.

The last time shares of the world's largest media conglomerate traded this high was in 2002.

In a research note Monday, Prudential analyst Katherine Styponias upgraded TW's stock to "overweight," arguing that it is "the only entertainment stock in our coverage universe that possesses three criteria that make it a compelling 'overweight.' "

She cited "operating momentum that will render better-than-expected results," a compelling valuation and catalysts that could highlight either of the first two criteria.

In her first assessment of Time Warner Cable as a stand-alone company, Styponias said that while most investors are expecting an initial public offering of TWC in early 2007, the cable unit could go public before year's end, depending on how fast Adelphia Communications finishes its bankruptcy emergence plan. TW executives have declined comment on the timing of any such moves, citing a quiet period.

Styponias said this could provide "an attractive investment opportunity," adding that TWC could have an enterprise value of $57 billion-$64 billion, which could mean a stock price of about $50-$57. "This would be 43%-63% higher than the $35 price implied" by a recent company filing, she said.

Styponias also cited strong cable margins and $200 million in cost savings from the Adelphia deal, concluding that "current Street estimates for TWC's 2007 operating income before depreciation and amortization" are too low. Her estimates are 12% higher than Wall Street's average projection.

Monday also saw the resurfacing of market talk that TW chairman and CEO Richard Parsons might make way for president and chief operating officer Jeffrey Bewkes as early as the conglomerate's next annual shareholder meeting in May. Parsons repeatedly has been named on various wish lists for political offices. More recently, his name keeps surfacing as a potential mayoral candidate in New York.

A company spokesman said that nothing has changed in TW's plans and added that "we have a good transition" process in place. Parsons will stay on "at least through the end of his contract" in 2008, he said.