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Macquarie analyst Amy Yong commented on the "stepped up" probability of a Time Warner Cable Inc. (NYSE: TWC) merger with Charter Communications (NASDAQ: CHTR) following Liberty Media Corporation's (NASDAQ: LMCA) deal to buy Sirius XM Holdings Inc. (NASDAQ: SIRI).

Yong raised Time Warner's price target from $135.00 to $150.00 and reiterated an Outperform rating.

The analyst reported that the pressure to turn around operations “is mounting” and a bidding war is possible. Macquarie added that Comcast Corporation (NASDAQ: CMCSA) may be interested in Time Warner Cable's New York and Los Angeles footprint.

Yong commented that Time Warner could support its multiple by leveraging balance sheet to increase outstanding $4 billion buyback authorization. She estimates that Time Warner would have access to incremental approximate $10 billion in buybacks if the company ups leverage by 1x.

Macquarie sees an upside to free cash flow estimates. The analyst cited that there is an approximate $300 million tailwind from lower pension funding due to the new IRS rule around capital item deductions. Yong added that 2014 subscriber trends will likely show signs of stabilization.

On Wednesday, Time Warner Cable and Charter Communications closed at $132.55 and $136.09, respectively.

Posted-In: Amy Young MacquarieAnalyst Color News Rumors Analyst Ratings

 

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