Time Warner (TWX) Is Cheap-Barron's

This weekend's Barron's had a bullish piece on Time Warner (NYSE: TWX). Barron's said Time Warner looks very cheap, given the cash that will be generated by the cable spinoff and its initiative to unlock the value of its AOL unit.

Jeff Bewkes is delivering on changes since Parson's departure several months ago. He announced the spinoff of Time Warner's 84% stake in Time Warner Cable (NYSE: TWC) in a deal that will net Time Warner more than $9.25 billion in a cash dividend. Yet, instead of cheering, shareholders have sold off the stock, about 12% this year.

Remove the value of the cable-transmission business -- about $5 per share -- and Time Warner trades closer to $10, or only for 10 times estimated 2008 earnings of 99 cents a share. At six times enterprise value to Ebitda, the stock is similarly undervalued, relative both to its history and peers like Walt Disney (NYSE: DIS) and Viacom (NYSE: VIA.B). Doug Mitchelson, an analyst at Deutsche Bank Equity Research, thinks the shares could be worth as much as 26 in a year, based on the company's "terrific assets and reasonable growth prospects."

Benjamin Swinburne, Morgan Stanley analyst and a Time Warner bull, forecasts Ebitda of nearly $8 billion next year, and thinks EPS could rise to $1.04. Time Warner earned $1.17 a share last year; Time Warner Cable contributes more than 40% of Ebitda.

The Barron's article suggested that with the assets assembled at Time Warner the stock should be trading above $20, a more than 40% rise from here. TWX definitely looks interesting at this price.
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