Time Warner Earnings Preview: 22 Percent EPS Growth Forecast

, which is spinning off its ailing magazine unit into its own publicly traded company, is scheduled to report its second-quarter 2013 results Wednesday, August 7, before the opening bell. Investors will be looking for details of the timing and strategy of the separation of Time Inc., a move intended to allow Time Warner to focus on its faster-growing TV and movie businesses. Investors also will want to see that the marginal revenue growth in the first quarter, which came after three consecutive periods of falling revenue, was not a fluke.

Analysts on average predict Time Warner will report that revenue for the second quarter rose more than five percent year-over-year to $7.11 billion. Earnings of $0.76 per share are also in the consensus forecast. That would be up from a reported profit of $0.59 per share in the comparable period of last year, as well as from $0.76 in the previous period. Note that the earnings per share (EPS) estimate is the same as it was 60 days ago. Also note that analysts have underestimated the company's EPS results in the past ten quarters. The earnings beat in the first quarter was by just a penny, though. The company said that first-quarter revenues were essentially flat year-over-year, dragged down by the publishing unit, but adjusted EPS rose 22 percent. It also purchased 16 million of its own shares in the period. The share price rose more than three percent in the days following the first-quarter report. Looking ahead to the current quarter, the analysts' consensus forecast calls for sequential and year-over-year of both EPS and revenue. So far, the full-year forecast calls for EPS and revenues to be more than 10 percent and two percent higher, respectively, relative to the previous year.

Time Warner is a media and entertainment that currently operates in three segments. The Networks unit includes Turner Broadcasting and HBO. The Film and TV Entertainment unit includes Warner Bros. Entertainment. The Publishing unit includes Time Inc. and related businesses. Time Warner was founded in 1985 and is headquartered in New York City. It is an S&P 500 component with a market capitalization near $60 billion. Jeffrey L. Bewkes has been the chief executive officer since January 2008 and chairman of the board since January 2009. Competitors include

, which was recently spun out to separate it from the publishing arm of

, and

. The former is expected to post a more than five percent EPS bump, but lower earnings. The forecast for Disney calls for flat earnings and five percent revenue growth.

During the three months that ended in June, Time Warner affirmed its full-year guidance, invested $50 million in China, saw record box office for "Man of Steel" and announced the departure of its Warner Bros. chief. A Time Warner and

merger was also rumored during the period.

Time Warner has a long-term EPS growth forecast of more than 12 percent, but its price-to-earnings (P/E) ratio is greater than the industry average. The operating margin is also higher than the industry average, though the return on equity is less than 11 percent. The dividend yield is about 1.8 percent. The number of Time Warner shares sold short, as of the mid-July settlement date, represents about a little more than one percent of the float. The short interest rose more than 22 percent from a month earlier, but it was less than half the peak back in March. Days to cover remained about two. Of the 30 analysts surveyed by Thomson/First Call who follow the stock, six of them rate shares at Strong Buy, and an additional 15 also recommend buying shares. The analysts' mean price target, or where they expect the stock to go, represents about six percent potential upside. That would be a new multiyear high. The share price hit the current multiyear high last week, after rising more than 26 percent since the beginning of the year. The share price is above the 50-day and 200-day moving averages. Over the past six months, the stock has narrowly outperformed Twenty-First Century Fox and Disney.